What are Binary Options?

What are binary optionsA binary option in finance is an option where a fixed amount which is either a fixed amount or nothing at all of an asset. When it comes to binary options there are two types:

• Option of cash or nothing
• Option of asset or nothing

The Cash Or Nothing

This binary option will pay an amount of cash that is fixed; this applies to the option when it expires in the money.

The Asset Or Nothing

This option will pay the under lying security at the value of which it is.

Other names by which binary options are known as are:

• Digital Options (These are used in interest markets. Forex)
• FRO’s: Fixed Return Options (Used on the American Stock Exchange)
• All or nothing options

Binary Option Buying

The potential for return when you buy a binary option is certain and before the purchase is made is known. Any financial product can have a binary option bought on it and can be bought as they say in either direction of trade, which is either buying the:

• Call / Up Option
• Put / Down Option

What this means to investors is that they can either go short or long on the financial product just by buying a binary option.

Expiry Time Fixed

Something else that are offered against binary options is an expiry time which is fixed against it and the amount of time can be:

• 60 seconds
• Up to 30 minutes
• An hour ahead
• At close of trading

If you do buy a binary option you will not be able to sell it until the expiry time has been reached.

What is Binary Option Trading?

Basically binary option trading is where the trader will predict how stock or a commodity will move:

• Up
• Down

It really is that simple. But one thing you do have to remember is that if you want to make a lot of money on a regular basis you will have to have a strategy with which to follow, so you can make as many high returns a possible but also keeping the risk to you very low. You may want to have a look at some of the online trading companies’ crash courses in binary trading which are free.

Why Trade In Binary Options

The simple answer is to make money. If you know how to trade in binary options properly then yes they can be very lucrative but you will have to work hard but if you do you can make:

• 100s
• 1000s in a day

But what you have to remember is that although you can make huge amounts of money through binary options, you will also be taking a huge risk and that is why the returns are so big. If you were to:

• Trade using traditional trading
• Forex
• Futures

You would not make as much money as the risks are much lower.

The Different Types of Assets Available to Traders

There are a wide range of binary options for traders to trade in. It does not matter what level of experience a trader has, as he will still be able trade with the large range of different trading options which any online binary options trading company has to offer and they will all provide you with large returns. These include:

 Stocks
• Commodities
• Indices
• Currency Pairs

Making The Right Selection

When you do eventually start trading you will need to see what the underlying asset is and select it. With such a large range of assets, traders are able to diversify their trades. What this does is enables traders access to leading assets that are international and from all over the world. What you will find is that every online trading company will have assets that are from four main groups and within these assets you will find:

• In Indices: FTSE, S&P 500, Dow Jones
• International Stocks: Companies such as BMW, Sony etc.
• Currency Pairs: USD/JPY, USD/CAD, EUR/USD
• Commodities: Silver, Gold, Crude Oil

For a trader to place his binary options trade, he will have had to choose the option of the asset. Another thing that traders can do is trade with either one asset which is underlying or many assets at a time.

Understanding Asset Categories

Stocks

This is what represents an organization and the ability it has to trade on the stock market and this also applies in traditional trading as well. Online binary option trading companies generally offer the trader an array of markets which are global and categories within different industries. The sort of stocks that are offered are:

• Google
• Apple
• Banking Industry: (Barclays, JP Morgan etc.)

Indices

What these do is offer the trader stocks which are in a group and traded on the market but globally. What the trader then does is looks for the overall trend in this group, what the trader will be looking for is an indication of performance overall in that region of that market. Because online trading companies have such a wide selection of leading indices traders can reap profitable returns quickly.

Commodities

The most popular ones are:

• Silver
• Crude Oil
• Gold

What these enable the trader to do is have options that are an alternative so they can use their trading strategy when trading binary options. All the information that trading companies have are all up to date.

Currency Pairs

These online trading companies will give traders the opportunity to trade on currency pairs which are leading in the word. Being able to use the foreign exchange to trade options on will enable traders to use their wealth of knowledge and strategy they have in trading with a market that is constantly moving. This area has the potential for huge gains and growth can be considerable.

John Walker

John Walker

Editor at Tradingbroker.co.uk
John was born in London ( United Kingdom ) and studied at The London School of Economics. Currently he lives in Sydney ( Australia ) and he works as editor at Tradingbroker.co.uk.
John Walker

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