How to Trade Binary Options

How to Trade Binary Options

Are you looking for an investment that is requires little forethought and is simple to execute? Welcome to the world of binary options, where trading involves only two investment possibilities for you to choose from and all you need to do is select a ‘call’ or a ‘put’ in order to make a prediction.

Binary options are classified as exotic options but they are really far from being exotic. Even the most inexperienced investor can decide to trade binary options because they are seem so straightforward. Either the price of the asset will go up or down. But even in their simplicity, there are complications that binary option traders should be aware of before they undertake to open a trading account with a binary option broker.

Trading is simple

In its most rudimentary form trading binary options is like gambling. You guess the direction of the price, and the date and time it will take for it to reach that price. An example of the simplest binary option trade goes something like this: You choose Alphabet Logistics whose price stands at $15 and decide that the price will reach $18, referred to as the ‘strike price’ at 9:00 am on December 25th. You enter a ‘call’ as you believe that the price is going to rise. If the share price at that exact time has reached $18 or more, you are paid a preset amount of money regardless of how much the instrument moved. If the share price fails to reach the predicted price at the time and date stipulated, you lose the money you invested.

If, on the other hand, you believe the price of Alphabet Logistics will go below $15, you can enter a ‘put’ which means the direction of the price will be down. If on December 25th at 9:00 am, the price has dipped below $15, you win. If the price ends at that time above $15, you lose.

U.S. Brokers

A difference exists between trading binary options in the U.S. and in other countries. Binary options in the U.S. are sold on exchanges while those abroad are sold by independent brokers. There are other differences as well. Those sold outside the U.S. usually have a fixed payout and brokers make their money from the percentage difference between what they pay on winning trades and what they take in from losing trades.

There are far fewer binary options brokers in the U.S. than in other countries due to the stricter regulation imposed on American brokerages and their manner of attracting and supporting their clients. Although some foreign brokers maintain a U.S. subsidiary, most are not legally allowed to solicit U.S. residents for trading purposes, unless that broker is registered with a U.S. regulatory body such as the SEC or Commodities Futures Trading Commission. This limitation hinders U.S. brokers from handling the volume of trade foreign brokers handle and has led to many U.S. brokers partnering with foreign brokers or closing their doors altogether.

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Risk Disclaimer: will not be held liable for any loss or damage resulting from reliance on the information contained within this website including market news, analysis and Forex broker reviews. The data contained in this website is not necessarily real-time nor accurate, and analyses are the opinions of the author and do not represent the recommendations of or its employees. Currency trading on margin involves high risk, and is not suitable for all investors. As a leveraged product losses are able to exceed initial deposits and capital is at risk. Before deciding to trade binary options or any other financial instrument you should carefully consider your investment objectives, level of experience, and risk appetite.