A binary option is when a buyer enters into a contract to purchase an underlying asset at a fixed price at a pre-determined time in the future.
Different from buying stocks and shares outright, with a binary option you are purchasing the right but not the obligation to buy shares of a stock and with its “All or Nothing” outcome the buyer is always aware of their losses from the start.
The potential loss or gain is determined by the amount invested by the owner and there are only ever 2 possible outcomes. If the option expires in-the-money the owner receives a 65-71% payout or if the option expires out-of-the-money the owner generally receives nothing, although there are a select few binary option platforms which offer a 15% return on all out-of-the-money results.
For example, if a buyer were to purchase a $100 option of XYZ Ltd with a 70% return rate promised of that chosen stock, an in-the-money result at the time of expiration would promise a $170 payout ($70 earnings plus the original premium of $100). If the result was an out-of-the-money finish the buyer would not lose more than their original premium of $100 and in some cases cold walk away with $15 (15% out-of-the-money payout).
You’ve heard lots about it, you’ve seen news of it all over the internet, and you’ve learned that there is little risk involved when choosing it as your investing route. Binary options trading is seen as the simple and stress free way to investing in the worlds markets. Popular worldwide and with its online accessibility, this revolutionary trading development has opened the doors for market trading to all types of investors and not just those high-risk big spenders. Read on for a real understanding of the basics as we take a look into binary options; the facts, the advice and the tips.
So what are binary options? They are contracts that give you the right but not the obligation to buy an underlying asset at a fixed price within a specific time frame. Therefore, when trading in binary options you are not actually purchasing something outright like when buying stocks or shares and the in-the-money result is purely based on the direction of movement in the stock and not the difference in price.
This means that even if a stock moves only 0.001 in the right direction, you are still collecting the same earnings as if it moved 2.020, giving investors a new sense of security they had never before experienced. The basics to consider when starting are simple. Firstly you need to decide which underlying asset to invest in and with a little bit of research this can be an easy and well-informed decision to make. The internet is a good place to start, a great resource to figure charts and financial news and a great aid when making verdicts that could earn you healthy returns.
Once you have decided the basics of which underlying asset to invest in you can then decide which type of option to purchase. When trading binary options there are 2 types of options; Call options and Put options. A Call option is what you place when you believe that the chosen underlying asset will expire higher than the price was at the time of purchase. On the other side, a Put option is what you place when you believe that the asset will expire below the original purchase price.
So if you had just found out that Apple, for example were not doing so well and are predicted to continue this way for now, you would purchase a Put option which would put you in a better position to earn if Apple continued to fall past the original purchase price. If however, you just heard that Barclays has had a recent boom in price and is predicted to continue this way, you might be inclined to purchase a Call option in hope that the price at expiration time would ring true to this news.
Binary options have different expiry times, ranging from hourly, daily, weekly and monthly contracts. Amongst the basics, the expiry time of binary options is quite an important thing to consider when trading and can even be used as a tool in improving your chances to earn. For example, you may hear news on the breakfast financial report that the FTSE 100 had just taken a fall and is looking uncertain until further news. This news could put you in a great position to purchase a Put option on the FTSE 100 with a 1-hour expiration contract, the odds being in your favour to earn with the high chance that things are unlikely to go the other way within the short space of an hour.
So there you have the basics to trading in binary options. Important things to remember with binary options are that time is of essence, both biding it and also using it as a tool. It is also wise to do your research and follow the movements of the markets as the information is there for you and could make the difference between earning and not earning. And really, why else are we here?