What is Binary Options Trading

What is Binary Options Trading

Binary Options enable you to trade a variety of different assets by simply predicting the price direction of the markets. If you correctly selected the direction, you will receive a payout which is shown before you place a trade and varies depending on the asset, option type and market conditions.

Binary options were originally introduced as Digital Options. Binary means 2 values and when it comes to finance it means up and down which is exactly what binary options are all about. Binaries are still called Digital options and are also referred to as the up/down option and the call/put option.

Trading binaries is straightforward and in their simplest form, there are only two possible outcomes. Either the option expires ‘in the money’ which means you chose the right direction, time and date, or you are ‘out of the money’ which means the price went in the opposite direction to the one you chose. Since the potential payout for each outcome is known before entering a trade, you know upfront how much you can make or lose and there are no surprises. This quick turnaround makes binary options a perfect investment vehicle for short term traders.

There are several differences between U.S. options and European options and interaction between the two is usually in the form of a subsidiary of the primary foreign broker. U.S. options can be exercised at any time between their purchase and their expiry date. European options, on the other hand, can only be exercised at the expiry date. There is also something called Bermuda options and these are somewhere in the middle of the two other types of options as they can be exercised at the expiry date or at certain specified dates between the option’s creation and expiration date.

Most U.S. binary option brokers are not allowed to solicit foreign traders and this has had a tremendous effect on the volume of their business.

Types of binaries

There are two main types of binary options. The cash-or-nothing binary option pays a fixed amount of cash if the option expires ‘in-the-money.’ The asset-or-nothing option pays out the actual value of the underlying security. These options are referred to by several other names: all-or-nothing options, digital options which are more common in Forex/interest rate markets, and fixed return options (FROs) which are those listed on the American Stock Exchange.

Digital options have various expiry periods including 60 second, 15 minutes, 1 hour, end of day etc. Once you commit to the trade, the trading platform will automatically monitor your trade and exit at the appointed time without your needing to log into the system.

The Touch Binary Option is another method of trading binary options. It has a number of varieties including Touch, No Touch and Double Touch. These come with predefined prices needed to win the trade, instead of the trader simply predicting whether the value of the underlying asset will increase or decrease. This can be a level that is either greater or lower than the current price of the asset.

Binary option brokers are always trying to introduce new types of options so they can stay ahead of the competition. Traders should be cautious about trying out new offers without adequately researching them.

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Risk Disclaimer: Online-Binary.com 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 Online-Binary.com 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.