Starting with Binary Options Trading

February 4, 2014 11:30 am

pay_out_binary_optionsWhen we talk about successful short-term investments, there is no power greater than the binary option business; and should the opportunity presents itself, we can count on big cash pay-offs in matter of minutes! There is a reason behind why this investment option continues to grow in popularity year after year, after year; although it has been acclaimed by some as being kind of a ‘random displacement of money’ kind of system, the ‘wild west’ of investments if you will. Let’s look at the core of the binary option and see why and how we can successfully profit from understanding its important principles.

First of all the binary option is available to the majority of the population, due to its low initial cost. A person can open up a trading account with no more than $100; which is perhaps the reason why the binary option has gotten so much bad rep over the years. You see, whenever big and important stock investors look at the binary option and its practitioners, they see a sort of a random gamble; a prediction based solely on whether a certain asset (commodities, stocks, bonds etc.) is going to go up or down. Similar to Forex (the foreign exchange market) and futures contracts, the binary option is essential to know and understand by heart, before placing a bet (buying assets of any kind).

In this publication, we are going to learn and understand exactly what the binary option business is, how to pick and choose between the different kinds of bets that can be placed and of course, some practical strategies that would at some level promise positive payouts. Keep in mind that that understanding the material will not guarantee you ‘instant wins’, and you most certainly wont become a millionaire overnight. Should such occurrences be cited, know that they are simply the exceptions to the otherwise uncompromising statistics.

What are Binary Options?

Every financial structure has its particularities; the binary option being no exception. It is called a ‘binary’ option because just like a coin-toss, there could be only two outcomes that a person can bet on. The binary option can encompass all aspects of industry, for as long as something can be bought and sold, there should be no issues betting money on that asset. These feature company stocks, a stock market index, or just any regular commodity, like gold or sugar.

The investor can choose the value of his new-bought assets, in terms of whether they will get higher or lower in price in the future, for a predetermined span of time (minutes/hours/days). All returns are fixed from the very beginning, and the only thing an investor has to worry about is being wrong in their predictions. The broker (i.e. the option seller) and the investor (trader) consolidate an agreement, which clearly states the profit and loss to be made, prior to placing the bet itself.

Win or Lose Type of Bets

For anyone familiar with the term “win or lose”, should have no problem finding their way around the binary option; even if they are first time investors (otherwise inexperienced) investors. Every binary option comes with its own set of explicitly specified risks and potential profits; all depending on whether or not the trader will have a winning forecast in regards to the underlying asset (that the bet is placed on) goes up or down in value. This is one of the most distinct characteristics of the binary option, in contrast with other options on the market (more on that later).

Even though binary betting is simplicity itself; there is some distinct terminology that is used by financiers to describe this event, thus memorizing even some of the basic language used is essential to the learning process. A lot of the time people will hear Put (decrease) and Call (increase) being used to reference the change in the price of underlying asset in question. Should a trader suspect that a certain asset is going to increase in value, then he would but a Call option on that asset.

After an investor has made a conscious decision on whether an asset is going to fall or rise in value, next it is time to determine the time period of when is the event going to take place. It doesn’t matter how much the price of the asset fluctuates during the preselected time period; unless it is one of the so-called ‘exotic’ options, the outcome is measured at the very moment the option expires. The period itself is determined by the broker and it cannot be subjected to alterations, neither by the broker nor the trader.

Limited Time Period

This limited time period is in fact the key difference between trading binary option, and trading other kinds of financial products (stock, bonds, commodities etc.). Should an investor decide to buy 1000 shares from any given company; he is then the sole beneficiary to whatever happens to the stocks in the indefinite future, should that be an hour, a year or a lifetime. When the market shares rise in value, the investor can sell the stock for a profit. If they go down however, it is at the expense at the shareholder (until such times come as to the share actually rising high enough in value to measure up a noticeable profit).

Binary options are not like that. A standard 2 day contract will last for as long as 2 days; and when those 2 days are over the contract will be no longer valid. Investors will benefit from their binary bet as soon as the predetermined period is over, or lose depending on the accuracy of their prediction. A typical medium-term binary option trading can take place anywhere from 1 to 7 days. Most trading however happens rapidly in a matter of minutes/hours. Long term binary option trading is also possible; casting time spans up to a month.

The way a trader chooses to handle his/her binary option is entirely up to the trader’s personal approach and tendencies. But it doesn’t matter how ‘accurate’ a person believes his intuition to be, when it comes to making money on the market, nothing beats the good old-fashion mathematical model (and the strategies that come as a result). Another great thing about placing money on a binary option, is that there are no initial fees, taxes, spread costs, commissions etc. that are otherwise associated with low-medium level financing.

Now, it is very important to note that the difference in stock value observed as the binary option is played out, does by no means affect the trader’s end payout/loss. With conventional trading systems like the stock market exchange, the actual difference in stock price is what determined how much a stock (or a number of stocks) is worth. But when employing the binary option, the payout/loss that the trader will suffer is determined only by whether the stock is going to go up or down in value, and nothing else. The size of the difference does not matter; for even if it is a sub-unit of a .0 percentage, as long as it is over or under the agreed level, both the broker and the trader are happy.

Where to Trade

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