What Are Binary Options And How It Works?

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There are several ways to trade and make money within the financial market, however many people find it difficult grasping these trading methods. Since new trading methods are continuously being introduced and legalized in the financial markets, it even further complicates issues, as people have newer stuff to learn.  The financial market has always seemed complex to a lay man, and hence many people do not venture into them. One trading method that has always been in the news is the Binary Options. Although legalized not so long ago, Binary Options has grown in popularity overtime. There are several understandings and misconceptions about Binary Options. However, all this stem from a lack of access to credible information about this trading method. The basic concepts involved in Binary Options trading will be explained here, and the seemingly complex concepts will be demystified. After reading this, you will be armed with enough knowledge to discern whether or not Binary Options is for you or not. So get strapped as we dive into the exciting world of Binary Options.

What Are Binary Options

Binary Options

In its most basic form, Binary Options trading simply involves trading price changes and fluctuations within financial markets. Binary Options are quite different from other trading options, because they can only go two ways, hence the name Binary. Binary Options are very fundamental option contract featuring only a fixed risk and a fixed reward, meaning a trade receives either a fixed profit or a fixed loss. Binary Options is an all or nothing trade involving no middle ground. Binary options are really quite simple to understand and trade. How Binary Options work involves you selecting an asset and then predicting whether or not its value will go up or come down over a certain period of time. Once you have predicted this, your broker will then reveal the percentage amount that you stand to gain. You can then proceed to officially commit your money to the trade and select whatever time frame you want to work within. . If your prediction is wrong, you will lose the money committed to the trade.

For example, you can predict that the price of gold will from whatever its current price is, within an hour from now. Assuming the winning trade offers a return of 75%, and you then proceed to trade $100 on this prediction. An hour from now when the option contract expires and closes, and the price of gold increases, then you will get a return of $100 + 75% of $100, which is $175 dollars. However, if you got your prediction wrong, you will lose all your capital – $100, although some brokers could give you back a percentage of your capital to encourage more trades from you. It is worthy of note that even if the price of gold rises by a very little amount, the prediction is still termed correct, as the magnitude of price movement is not a factor in determining the amount of a trade’s return.

One of the greatest things about trading binary options is that you are provided with more than enough information about the trade, ensuring you have proper knowledge of how much exactly you stand to gain and also the exact time the money will appear.

Key Terms in Binary Options

Given the technical nature of Binary Options trading, there are some very important terms that must be well understood by any potential Binary Options trader. These terms are the defining guides of Binary Options trades, and a proper knowledge of them will make executing trades a piece of cake. The key terms in Binary Options which every trader needs to take note of are:

Strike Price: The strike price in any Binary Option trade is the price at which one entered the trade. This price determines whether or not a trade is a win or a loss. It is the price that the asset you trade upon needs to close at in order for you to win the trade. For example, in the example given earlier, if the price of gold at the time or placing your trade was $1500, then the strike out price is $1500, as this is the price the asset needs to beat in order for you to win the trade.

Expiry Time: This is the time duration during which you hold your position on a trade. It is the time length from when a trader buys the option contract to when the contract closes. A good number of Binary Options traders are very short term traders, so the expiry time can be seconds or minutes, however some traders can hold a position on an asset for up to a month.

Payout Offer: This is the return that a Binary Options broker offers a trader on a particular trade. The payout offer is usually known before a trader commits money to any trade. In the example given earlier, the payout offer is put at 75% for a win and 0% for a loss. However, some brokers offer payouts for losses, usually between 5% and 10%. This is however dependent on the broker and the trade made.

What Can You Trade?

Binary Options allow you trade virtually all the financial instruments available on the financial market. With Binary Options, you can trade Stocks, Commodities, Indices, and all major currencies. Binary Options allows you trade on an international scale without having to change brokers. You can trade between multiple global financial markets, as many top brokers feature stocks and indices from Europe, Asia and the Americas. So basically, you can trade virtually everything on the same platform. So whether you want to trade the Japanese yen, Google’s stock, or gold, you can do all of this without having to run multiple trading platforms.

Difference between Binary Options and other traditional Trading Options

There are several other options in that create wealth in the financial market, all of which are quite different from trading Binary Options. Some of these differences will be thoroughly examined, so as to enable you effectively discern a Binary Options trade from other types of options. Some of the basic differences from a Binary Options trade and other traditional Options are:

1. Binary Options traders hold no right to buy or sell actual securities, whilst traditional options offer holders the right, but not the obligation to buy or sell actual securities.

2. In Binary Options, Payout is usually fixed or it is the market value of the security, however in traditional options, the payout is typically the difference between buy and sell price of an option if it is not exercised.

3. Binary Options is not regulated by the major security exchanges of the world, but traditional options are usually regulated by definite country derivative trade exchanges and controllers.

4. In Binary Options, the holder of any option does not possess a right to exercise the option before its expiry date, as he is obliged to see it out until it expires, however, traditional options allow holders of options to exercise the options before their expiry dates.

Benefits of Binary Options

There are several advantages of trading Binary Options, little wonder why they have quickly grown in popularity over time. This method of trading is easily understood by all and sundry, and is very simple to execute. Some of the many advantages of trading Binary Options will be examined here.

High Return on Investment: Trading Binary Options can yield a very high return on investment. This is one of the reasons why Binary Options have become so popular amongst traders in recent times. This high return on investment is as a result of the thigh risk that traders face whilst trading Binary Options. It is very common for traders to typically earn between 60-90% return on investments unlike other methods of trading in the financial market.

Easy to Trade: Binary Options are very easy to trade and the trading platforms are very appealing to people who have little or no experience in the financial market. You do not have to worry about the technical parts of your asset, like stop losses and the magnitude of price fluctuations, this aids the ease of experience in trading Binary Options.

Known Risk: This is very big advantage in trading Binary Options, as you are made aware up front the exact amount you are risking and how much you would profit if you win. There is no risk of leverage that causes you to lose more than you have staked, and this certainty beforehand is very key to the rise of Binary Options.

Quick Turnover rate: There is a quick turn over rate of returns in Binary trading, resulting in a quick payout. Although the turn over rate depends on the broker, asset traded, and other factors, but it typically takes an hour or less. Some binary options trade in minutes or seconds, guaranteeing you a quick turn over as well. Couple this with the substantial profit rates, and a quick few trades a day can provide you with great earnings.

Low Investment: Trading Binary Options is very affordable to begin with. Some brokers allow minimum trades of as little as $1, ensuring there is the possibility for anyone to earn from Binary Options. It is always advised to trade with as much as you can lose. Couple the low investment possibility with the high rate of return on investment, and you will understand why everyone is buzzing about Binary Options.

Wide Range of Assets to Trade: Binary Options allow you trade a wide range of financial assets across multiple global markets. You are exposed to financial assets of different classes, and irrespective of your knowledge or choice of financial assets, you will always find something for you. This single benefit allows traders the opportunity to diversify their risk, giving them control over their trades.

Trade Anywhere and Anytime: Several Binary Options traders allow users the convenience of trading on their Laptops and Mobile phones, with the advent of trading mobile apps. This means that Binary Options traders can make trades and monitor their positions regularly without any hitch.

How to Get Started with Binary Options?

Now that you know every single thing about trading Binary Options, how do you get started in this exciting world of wealth creation in the financial market? There are a number of ways to get started with Binary Options, and we will be breaking down the most fundamental and easy way to get started. So if you have ever wanted to delve into Binary trading, or you have read this article and you are interested in the subject, then you are on the right path. The following steps will guide you and ensure you have a clear vision all through the way.

1. Sign up for a Binary Options Account with a reputable Broker. Please ensure you do a proper research on the Broker before creating an account with them.

2. Deposit your funds with the broker so as to get prepared to take advantage of trading opportunities. Ensure to start with a small capital that you can afford to lose.

3. Set up a Demo account on which you can make fictitious trades, so as to enable you learn all there is about trading and give you a practical experience before making live trades.

4. When you feel like you are ready to begin making live trades (we recommend doing this after you must have made about 30 demo trades), you can begin making live trades. However, ensure you start small ($5-$10), as the goal is not to make millions at one, but to accumulate your earnings.

5. Develop trading strategies and read up on guidelines from experienced traders. This should guide you in your early days, until you garner enough experience.

Conclusion

It is no doubt that Binary Options have come to stay. Given the numerous distinguishing benefits of Binary Options, this trading method will continue to rise in popularity amongst traders. The high return on investment over a short period of time embodies what trading is really about. Even if you have a miniscule knowledge of the financial market, it is very easy to get started, as has been explained in this article. Jump on the Binary Options train, because I am sure you do not want to be left out of this financial revolution.