What Exactly Are Binary Options?
Many have heard of binary options, but not everyone understands how they fit into the marketplace. The fact that they are sometimes referred to as digital options or exotic options often adds to the confusion. The simplest definition would be a fixed return investment in which there are only two prospective outcomes – profit or loss. The exact outcome will be the result of decisions made by the trader, as well as the current market conditions.
The basic binary options trade requires that a selection between a asset price increase or decrease be made. These trades are often referred to as Put or Call. Put is linked to downward price movement, while Call is linked to upward price movement. No shares of any asset are ever purchased. Instead, an asset is selected and analyzed, after which a contract is purchased based upon the forecast of its upcoming price movement.
Within each binary options platform traders will have access to a variety of stocks, commodities, indices, and currency pairs. Typically, there are at least fifty to choose from, with some brokers offering as many as two-hundred. Traders are always free to select the only the specific assets that they wish to trade with, which means that only assets which are exhibiting the most predictable price movement can be selected. With such variety comes plenty of different different potential trade setups, which in turn creates virtually limitless profit opportunities.
Every trade is bound to an expiry time. This is the period of time during which the binary options trade remains open. At the exact second that this period of time draws to a close, the actual asset price will be compared to the price forecast in order to determine whether the trade was indeed profitable. If so, a predetermined return rate is earned. If not, the exact amount of the investment will be lost. Loss amounts never exceed the investment amount that was decided upon by the trader and profit amounts never exceed the set rate as established by the broker.
The risk associated with this form of trading is low due to the fact that the trader has complete control over every selection. In addition, most brokers now have their minimum investment amounts set at extremely low levels, sometimes even as little as $1. Many platforms now included additional features that allow traders to sell their contracts prior to expiry as a means of securing some profit or reducing a loss. These features are optional, but when used correctly they can be extremely beneficial.
No type of previous market experience is required in order to trade binary options. In fact, anyone can learn to trade in less than thirty minutes and begin to earn money within the very first hour. Modern trading platforms are extremely user-friendly and most brokers provide educational resources and personal assistance to help traders get started. There truly is no simpler way to generate profit from the markets, as simple price movement predictions can lead to substantial returns.