Binary Options

Introduction to Binary Options

Binary options, also known as ‘digital options’ or ‘binaries’, are a cross between traditional buy-and-sell options and fixed return options. One of the major differences between trading in the stock market and trading in binaries, is that with binary options, you don’t actually own the share – instead you speculate on its performance.

Unlike a spread bet, a binary option does not require a margin; there are no stops; and the trader always knows the maximum risk and maximum profit.

Binaries came about as traders and investors worldwide strove for new, simplified ways to trade options across the financial markets. Binary options are a cross between traditional buy-and-sell options and fixed return options. However, you shouldn’t be overwhelmed by this new system. More and more financial traders are finding it to be the easiest, simplest way to make the most out of online trading.

Understanding the basics

When trading binary options, you only have to consider two factors: first, what is the current market price and second, do you believe the price will be higher or lower within a fixed time period.

Binary options, as derived from their name, are options (stocks, currencies and commodities) that pay out a fixed return, depending on whether a certain condition has been fulfilled by the time the option expires. For example, you can speculate USD100 that the Google share price will be higher or lower than the current price in one hour from now. If you are correct, you will receive a 70% payout on you initial investment (in this example you will receive a USD170 payout). On the other hand, if you are wrong, you will receive just 10% of you initial investment amount (in this example you will receive a USD10 payout). If the option closes at exactly the same price, the original investment amount will be returned to the player.

Benefits of trading Binary Options

You should now have a good idea of why binary options are fast becoming the simplest way to play the markets and why they can yield large profits for online traders. Nevertheless, here are some of the other major benefits:

1. Easy to understand: Binary options are easier to understand than traditional forex, since speculating is restricted to directional movement.
 You buy a ‘Call’ option if you think that the market will go up, or a ‘Put’ option if you believe the market will go down.
2. Limitation of loss: Your maximum loss is capped at the initial invested amount, making sure the risk stays constant and clear and leaving you free of worrying about margin calls, stop losses or the need to closely monitor your positions.
3. Speculate hassle free: Binary options allow you to speculate on whether the underlying market price will increase or decrease in value without the need to buy or sell the underlying share itself.
4. Profit from flat markets: Because binary options, by nature, carry a fixed return, they offer opportunity when markets are trading flat.
5. Commission free. There are no brokerage fees or commissions.