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Introduction to Binary Options

Binary options is a relatively new way to trade within the financial markets. This type of trading was legalized in 2008 and its simplicity has attracted traders of different ages and personalities. What makes this unique from other forms of trading is that will not be taking ownership of any assets and instead, you will be guessing its future price or market value. In simple words, you are basically guessing whether its price will be higher or lower than its current price.

There are only two possible outcomes with a binary option:

In the money – when your guess about the price movement or direction is correct.

Out of the money – when your guess about the price movement or direction is incorrect.

With binary options, you can get considerably high returns in such a short period of time as long as your trades go in the money. And in the event that your trade goes out of the money, some brokers will still give you back a portion of what you initially invested so you’re not losing all that money you spent on an option.

How does it work?

With binary options, you will be trading on commodities, stocks, indices and currencies (forex). These are called underlying assets since the price of the option are taken from their actual market price. As the trader, you will be guessing whether an underlying asset’s price will be higher or lower than its opening price when it reaches the expiration time. Basically, you only have two choices:

Call (or High) – you speculate that the underlying asset’s price will be higher than its current market price when it reaches expiration.

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Put (or Low) – you speculate that the underlying asset’s price will be lower than its current market price when it reaches expiration.

If your guess is correct then you win the trade and you will receive the agreed payout.

Here’s an example to make things clearer

Let’s say you want to trade on BMW’s stock price. If you speculate that BMW’s market price will be higher than its current price of 91.8700 after at 21:45 then you need to invest on a Call (High) option.

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If BMW’s stock price reaches even 1 point higher than the previous price upon expiration then your option is in the money and you win the trade. Such trade can give you a profit of around 85% on a single trade on Call/Put (High/Low) options. In the example above, the potential return is $17.30 or 73% of your $10 investment. If the result is the other way around then your option is out of the money. Depending on your broker, you will either lose all the money you invested on that option or you will get back a portion of it which is usually around 15% of the amount you invested. In the example above, there is no refund if your selected option is incorrect.

So why should I trade binary options?

It is important to remember that binary options are based on speculation which means that winning is probable but not assured. However, this type of trading boldly enhances the elements of speculation thanks to the availability of various tools and resources that you can use in trading binary options in order to make an accurate speculation.

The bottom line here is that you are not required to be an expert in trading for you to enter in binary options trading but a certain degree of knowledge can already help you in making successful trades. At the outset, binary options only necessitate a considerably small amount of investment but the returns are already reasonable and you are already aware of such returns even before you started the trade.

With the help of online trading platforms, anyone can now trade from any location and get real-time information that is needed for making such trades. By making small but smart and losing a few insignificant investments, you could still generate considerable profits within a short period of time. And with the booming industry of binary options, brokers continue to improve their services and offer more far more advanced features for your benefit as a trader.
 

 

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