Binary options let traders profit from price fluctuations in multiple global markets but it's important to understand the risks and rewards of these controversial and often-misunderstood financial instruments. Binary options bear little resemblance to traditional options, featuring different payouts, fees, and risks, as well as a unique liquidity structure and investment process.
What Are Binary Options?
Binary options are deceptively simple to understand, making them a popular choice for low-skilled traders. The most commonly traded instrument is a high-low or fixed-return option that provides access to stocks, indices, commodities and foreign exchange. These options have a clearly-stated expiration date, time and strike price. If a trader wagers correctly on the market's direction and price at the time of expiration, he or she is paid a fixed return regardless of how much the instrument has moved since the transaction, while an incorrect wager loses the original investment.
The binary options trader buys a call when bullish on a stock, index, commodity or currency pair, or a put on those instruments when bearish. For a call to make money, the market must trade above the strike price at the expiration time. For a put to make money, the market must trade below the strike price at the expiration time. The strike price, expiration date, payout, and risk are disclosed by the broker when the trade is first established. For most high-low binary options traded outside the U.S., the strike price is the current price or rate of the underlying financial product. Therefore, the trader is wagering whether the price on the expiration date will be higher or lower than the current price.
What Is The Binary Options Trading?
A binary option is a financial instrument with a fixed cost and where the size of the potential payout is known beforehand. You can make a profit from these instruments in the space of just 30 seconds! See for yourself; make a prediction and open a trade in our Binary Trader platform. The result is down to you; if your prediction is correct, you'll make a profit.
What is a binary options broker?
A broker is a company or individual that effectively connects buyers and sellers of different underlying assets so that they can trade with each other. In this way, the broker acts rather like a middleman or an agent. To enter the world of binary options trading, you first need to find a broker. If you want to trade with binary options, you will need a binary options broker.
The binary options broker’s role
Think of financial markets as a street market selling everything from fruit and vegetables to clothing and electrical goods and of the binary options broker as an individual stall holder.
You want to buy some apples but it makes no sense for you, the customer, to drive out to a farm every time your fruit bowl is empty and negotiate a price with the farmer. At the same time, it makes no sense for the farmer to make thousands of tiny sales to individual apple eaters. So you seek out a stall holder with a good stock of apples who have already agreed with the farmer how much he will pay for them and has decided on a price he will charge you. He deals with both the farmer and the consumer and allows trading between the two of you to take place.
Why are binary options so popular?
Simplicity: All you need to open a trade is to select a binary option type, and determine whether the price will go higher (Call) or lower (Put).
High returns: You can earn up to 100% on your initial investment!
Accessibility: It's easy to start trading. The minimum deposit in our Binary Trader platform is just 1 USD.
Earning: You always know how much you could earn. The payout of every option is known beforehand, with a potential profit as a percentage of the initial investment.
Calculated risks: Even before you make the trade, you know exactly what you're risking and how much you could earn. These values are calculated automatically in the trading platform.
An example of a binary options trade
Suppose that you believe the exchange rate of the EURUSD currency pair will rise during trading on the currency market, so you buy a Call option.
If your prediction turns out to be correct, with an initial investment of 100 USD, you'll make a profit of 80% (80 USD). So, when trading closes, you'll receive 180 USD (initial investment + profit). The bigger your initial investment, the higher your profit! The maximum investment for one trade varies from broker to broker.