Monday, December 22nd, 2014

What is Binary Option ?

Binary Options are a great way to trade the markets no matter what your level of trading experience is however much like trading any product there are some very essential basics which you need to understand about binary options before trading them.

First off I will just briefly explain what a binary option is for those of you that have not encountered them before.

A binary option is basically a yes no proposition. You decide whether the price of an asset (a currency pair, a commodity such as oil or gold or silver, a stock, ie google or a index ie , ftse100) is going to go up or down from its current price. If you think the price of an asset will close above the current price you take a call option and if you think the price of an asset will go down you select the put option.

This way of trading binary options is called Hi-Lo , ie the price will either go up or down. There are also other ways to trade binary options but we will outline these in a later article.

Lets take a real life example of a binary options trade :

For the purpose of this example we will take a company like microsoft.

If at the time of taking the option the price is $100 per share and you believe it will go up within a certain time frame (lets say one hour which is pretty standard for a binary option). So you take a call option of $100 with a return % of say 78%.

If the price of the asset (in this case the microsoft stock) at the expiry time is higher than the price of the asset when you took the option you will receive a payout of $178.

However if the price of the asset at the expiry time is lower than the price of the asset when you took the option you will lose your investment of $100.

It becomes clear then that Binary Options only have two possible outcomes, either a binary option expires in the money (in which case you get paid out) or the binary option expires out of the money (in which case you lose your investment) and this is why they are known as binary options,

As well as having only two possible outcomes when trading binaries you can never lose more than your initial investment (unlike with traditional options trading). The return and the risk are always fixed when making the  initial trade.

Since binary options pay out when the strike price is in the money you no doubt are realising that in order to trade binary options you will only need to get an idea of the direction of any asset movement. It does not matter how much the price of an asset moves, the option just has to expire in the money.

Couple this with the fact that you can trade binary options from as little as $30 at a reputable binary options broker and binaries become a great addition to any trading portfolio and are in fact a great way for beginning traders of any kind to enter and experience the market with limited risk and no need for giant amounts of investment money.

Returns with binary options can be anything between 60 and 81% and profits can be made within the hour or sooner depending on which binary options broker you decide to trade at.

If you are looking to get into binary options trading online  please see  Choosing a binary options broker for advice on selecting a binary options broker. Alternatively you can go directly to our binary options brokers page and select one of the brokers that we list.

Another very important aspect of binary options trading is to be informed. To this end we provide you with a weekly and daily analysis of the forex, index, stocks and commodities markets. Please see our Binary Options News section

Frequently asked questions  about Binary Options

What kind of assets  can you trade with binary options ?

Binary Options allow you to trade a wide variety of assets including commodities, stocks, indices and currency pairs. For a list of the most common assets available to trade at our recommended binary options brokers please see our What kind of assets/instruments can you trade with binary options page.