Binary options are an aspect of the online financial trading market. The term “binary option” refers to a type of option that has only two possible outcomes when traded: the payoff is either some fixed amount or nothing at all.
The binary options market is a relatively new industry which became popular in the last few years. There are various reasons why traders may decide to go the binary options route, one of the reasons being that the trader does not need to know a lot about the market in order to start trading. Most binary options companies use online platforms that are meant to be user-friendly, so that someone with absolutely no experience can feel comfortable starting to trade. Another reason why one might choose to trade binary options as opposed to involving themselves in other forms of financial trading is that the results are almost instantaneous; usually at most an hour after the trade has been placed, the trader knows how much money he has gained or lost the trade.
When trading binary options, there is no actual asset being traded – no one is buying or selling a physical part of a company, for example. Rather, the trader is trading only on the price of an option. There is a certain expiry time, depending on which asset is chosen and which binary options platform is being used. The expiry time is usually on the half hour or hour, and the option is “frozen” for trading on about five minutes before the particular expiry time.
All the trader must do is choose an asset to trade on and decide if he thinks the price will go up or down by the expiry time. If he believes the price will rise, he selects “Call,” and if he believes the price will decrease, he selects “Put.” If the trader predicted correctly by the time of expiry, he is considered ’’in-the-money.’’ If he predicted incorrectly, he is considered ‘’out-of-the-money.’’ The pay-out that the trader receives in binary options trading if he is ‘’in-the-money’’ depends on which broker he is trading with. The amount that the price rose or falls does not matter – what determines if the trader is ‘’in the-money’’ or ‘’out-of-the-money’’ is whether the price rose or fell, not how much it rose or fell. Check out the top binary options brokers here.
There are four different types of options that may be traded on in the binary options market: Stocks, commodities, indices and Forex (foreign currency exchange). As previously mentioned, the trader does not trade any actual options; rather he trades on the price of an option. A trader who wishes to be successful would not blindly guess whether to select “Call” or “Put,” which would give him a 50/50 chance of winning or losing. Instead, in order to try to be as profitable as possible, he would make a prediction based on various trends in the market.
There are two basic “schools’’ of strategies used for binary options trading; the analytical approach and the fundamental approach. There are people who prefer to use the analytical approach, meaning that they study relevant data information and financial charts, such as the candlestick chart. There are other people who subscribe to the fundamental approach, meaning that they choose how to make their predictions based on events happening in the news. Check out the best platforms to trade binary options for more information.