Binary options provide investors with a simple way to speculate on the direction of a market with a simple “yes or no” answer to the question of which way will the market move. The benefits are substantial, as you do not need to speculate on how far an exchange rate will move, you only need to determine if a security will move higher or lower from the current rate.
Here is how binary options work. First you pick a security or currency pair that you are interested in trading. The next step is to determine the expiration time. Like vanilla options, you have a time or date when the option matures. The goal of trading binary options is to determine if the price will be either higher or lower than the current level, or the strike price, when the option expires. So, if you choose to trade a 60-minute binary option, the security you trade needs to either be above or below the strike price when the option expires in 60-minutes.
The concept is relatively simple, if you choose a call binary option the price of your security needs to be above the strike price when time expires. If you choose a put binary option, the price of the security you are trading needs to be below the strike price when the option expires.
Most binary option brokers offer a range of exchange rates and securities as well as expiration times and dates. Some offer periods as long as monthly, as well as short term 60-second binary options. All you need to do is find the time horizon that works for you.
The payout on binary options range from 60% of your capital to 100% of your capital. So if you bet $100 that the EUR/USD will be higher in 60-seconds, and you are correct, you could receive a payout of $160 to $200. The price only needs to be higher even by half of a pip, for you to be in the money and receive a payout. The payout you receive is the same whether the price of the security is 1 pip above your strike price on a call option or 200 pips above your strike price. Remember though, if the price is below your strike price at expiration and you purchase a binary option call, you will lose most if not all the capital you traded. Binary options are perfect to use when an event such as an economic release or monetary policy decision is about to take place.
So if you are interested in a new exciting way to trade the markets, without having to determine how far a security or exchange rate will move, then binary options will be an excellent way for you to trade the markets and generated returns by simply answer a yes or no question.
Well said Mich.
I’d like to add that the binary trading market can be difficult waters to navigate. Just make sure you watch who you listen to and if something sounds too good to be true, it is.
Spot on John, one has to always beware of anything that sounds too good to be true.