What are binary options, while they seem
relatively new, they have been traded for well over
a decade, though they were originally traded over
the counter usually between two institutional
investors, mostly hedge funds and investment
banking prop desks. Retail traders had to wait
until 2008 before they were granted the right to
trade binary options, and since then the popularity
of this asset class has gone through the roof.
It can best be summed up as a trade that offers only two distinct
outcomes, either your trade finishes in the money (winner) or
out of the money (loser). This is in stark contrast to traditional
vanilla options where concepts such as time decay
(theta), volatility, strike price, time to expiration and the like all
go into the pricing.
They are a simple risk-reward proposition, which is known and
clearly stated prior to entering the trade. A lot of the trading
sites place a return percentage of anywhere between 60% to
90% for winning trades and a 0% to 15% return of capital for
losing trades.Binary Options signals are usually offered on a
variety of underlying assets across most trading platforms.
Stocks (otherwise known as equities) are offered across most
platforms, but usually the number of stocks is limited. Stock are
typically only offered on the largest, most liquid names such as
Apple, Google, Microsoft, Intel, JP Morgan, and the like.
Technology stocks make up the majority of stock based binary
options. Foreign exchange (Forex) are also well represented
across platforms with most major currency pairs making up the
bulk of trading.Popular commodities such as
Gold, Silver, Oil, Natural Gas, and Copper and Major Indexes
across the globe can also be found on most of its trading
One of the most important thing you need to be careful about, is
choosing your broker. A good platform can help you to read
and understand the market. You just need to follow the trend. If
you use a good analysis and strategy, you can make lot of profit.
One more important thing, Never go against the trend.
There are few terms which are used in its trading.
Call Option - this is the type of options that traders buy
when they think that the asset price will be higher than
the strike price at the time when the option expires.
Put Option - just the opposite of a Call Option. Binary
options traders buy it when they expect the price of the
underlying asset to go below the strike price at the time of
Fundamental Analysis - a basic financial analysis method
that takes into consideration global indicators (also known
as macroeconomic factors) like
unemployment, GDP, interest rates etc. It also examines
factors that are specific for the particular company like
management, underlying value and others.
Technical Analysis - this is a method that predicts future
movements of asset prices in relation to historical market
data. The Technical analysis uses various charts that may
have different chart patterns like triangles, gaps, double
tops and bottoms etc.
In-the-Money is used when your trade is successful at the
time of expiry.
Out-of-the-Money means that the trader has not managed
to predict correctly the movement of the asset price and
the trade is unsuccessful.
At-the-Money is used in the rare occasions when the asset
price at expiry is equal to the initial price.
Index - this is a portfolio of stocks that represent a market or a
part of a market. Each index has its own calculation
methodology and usually traders can read a short description of
all trad-able indices in the Asset Index presented on the
website of every broker.
Payout is the profit that is credited to the binary options trading
account if the option has expired In-the-Money. The maximum
payout for the High/Low binary options is in the range 65% -
85% for most of the brokers, while the maximum payout for
the One Touch options can get as high as 500%.
Option Builder - a special binary options trading tool that allows
investors to build a binary option, based on their own
preferences. When you use Option Builder you choose an
asset, an expiry time and a profit/loss ratio that depends on the
risk you are willing to take.
Buy Me Out - an exclusive binary options trading feature that
allows you to close the position before expiration time. It is
used to minimize losses in cases when the market is not