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Trading Binary Stock Index Options
Trading binary stock index options is often characterized as a quick and easy way to profit from the stock market. Those who promote this means of trading stock options remind us that in trading binary stock index options risk is limited to the price paid for the options contract. This, of course, is the case in all options trading. In trading binary stock index options the trader pays for his contract and typically enjoys a fixed return on his investment if the trade goes as expected. Advertising for companies that offer trading in binary options often refer to binary options as the most rapidly growing part of the options market. The question that the options trader needs to ask is if trading binary options on stock indexes is a profitable way to trade options.
Cash or Nothing versus Asset or Nothing Binary Options
Binary options trading gets its name from the fact that there are generally two possible outcomes to a trade, payment of something or nothing. Although widely traded in the US options market , these options are typically European style in that the issue is settled at the end of the contract period and not before. Also, there are two types of payoffs in binary options trading. In one the trader receives a set amount of money if the call option finishes in the money. In the other he receives the amount of the equity. The second case is similar to regular options trading in that the trader can benefit to the extent that the index advances. In the first case his profits are limited by the nature of the contract.
Looks Easy but Be Careful
Trading binary stock index options is often presented as being easy when compared to other kinds of options trading . If profits are not your motive the process can be very easy! Set up a trading account and purchase the appropriate hardware and software to make trades online. When all of this is in place, just pick an index to trade, decide whether you think that the index will move up or down, choose how much you want to “wager” and click the “buy” button. Is this fast and easy? Maybe yes, maybe no.
Depending upon the degree of sophistication required computer trade stations and trading software can be reasonable in price or very expensive. Make sure that whatever software you purchase that it is compatible with the online broker through whom you trade. Remember that when you put money into a trading account it should be money that you can afford to lose. Now we are to the point of the so called easy steps to trading binary stock index options.
Choosing Which Index to Trade
It is absolutely basic and essential to investing or trading equities is to know what you are trading and why. This is not a quick and easy matter. Options traders spend a large amount of their time deciding on this issue.