What Are Binary Options?

What Are Binary Options?

What Are Binary Options? Binary options trading are a very simple way to trade price fluctuations in multiple global markets (up / down), but a trader needs to understand the risks and rewards of these often-misunderstood instruments. If your prediction if correct you can make profits of minimum 65% up to 95% on your initial investment. Binary options are different from traditional options.

Binary options trading are extremely simple to use and understand functionally. The most common binary option is a “high-low” option. Providing access to stocks, indices, commodities and foreign exchange, a high-low binary option is also called a fixed-return option. This is because the option has an expiry date/time and also what is called a strike price. If a trader wagers correctly on the market’s direction and the price at the time of expiry is on the correct side of the strike price, the trader is paid a fixed return regardless of how much the instrument moved. A trader who wagers incorrectly on the market’s direction loses her/his investment.

High-Low Binary Option Example

Assume your analysis indicates that the S&P 500 is going to rally for the rest of the afternoon, although you’re not sure by how much. You decide to buy a (binary) call option on the S&P 500 index. Suppose the index is currently at 1,850, so by buying a call option you’re wagering the price at expiry will be above 1,850. Since binary options are available on all sorts of time frames – from minutes to months away – you choose an expiry time (or date) that aligns with your analysis. You choose an option with an 1,850 strike price that expires 30 minutes from now. The option pays you 90% if the S&P 500 is above 1,850 at expiry (30 minutes from now); if the S&P 500 is below 1,850 in 30 minutes, you’ll lose your investment.

You can invest almost any amount, although this will vary from broker to broker. Often there is a minimum such as $1 and a maximum such as $10,000 (check with the broker for specific investment amounts).

One Response to “What Are Binary Options?”

  1. for me binary options trading is fun. some time i made few dollars 🙂

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