What Are Binary Options?
Binary options are an exciting way of investing in the financial markets. They are also known as digital options or Fixed Return Options (FROs). A binary option is the right to buy (or sell) an underlying asset (stock, commodity, index, or currency pair) at a fixed price, within a specified time frame.
Most of our traders usually opt for hourly options meaning their options will expire by the end of the hour. You can also choose options that expire at the end of the day, week or month. To make a profit you need to predict the direction of the asset’s price: up or down. When an option expires (usually at the end of the hour), as a trader you can be “in the money” or “out of the money”. Being “in the money” means that the trend moved in your favor and you gain a profit. Being “out of the money” means it moved against your favor, and you lost this time. If you predict that the price will go up you are investing in a Call option, and if you predict that it will go down you are investing in a Put option.
When you trade in plain options (not binary options), gains or losses vary according to how far the asset’s price had moved. In binary options, gains and losses are fixed regardless of how “deep” the option is in or out of the money. If the option is in the money, your profit will be 65-71% of your investment. If the option is out of the money at the expiry date, you will always get a fixed return of 15%. That means that your risks are controlled, and you always know your profits and losses prior to making your investment. For instance, if I invested $300 on a Call option on gold that expired “in the money” I earn 71% of my investment – i.e an additional $213. If the option expired “out of the money”, meaning its price did not go up by the expiry date, I remain with 15% of my investment – $45.
How Does It Work?
First of all Choose an asset for which to buy, then choose an expiry date for your option. an expiry date can be the next hour, the end of the day, the end of the week or the end of the month, Set the amount of your investment. Finally, predict the direction your asset will move: UP or DOWN. You are in fact choosing an option: Call option (UP) if you think that the asset price will be higher than its strike price at the expiry Simplicity – since all you have to do is predict the direction of the asset price change, you don’t have to be an expert on that certain asset and its potential future changes in price. Once you buy your option, there is no need to further plan or monitor your option, as the expiry date is fixed and known to you in advance.
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Low entry cost – You don’t need a huge capital to begin trading. The investment amount depends on you and can be as little as $25. Binary options are the perfect 21st century investment. They are user friendly, internationally available and technologically advanced. They incorporate the simplicity of regular options with above-average profits. When used intelligently, binary options can be an extremely useful substitute to traditional spot market instruments. They are simple to learn and master, they offer controlled risk and are available to any trader. There is no need for a huge capital, and the amount of investments is up to you to decide.