Introduction to Binary Options Trading
Binary Options are options with only two possible outcomes.
For example if the trader accurately predicts that the value of gold will go up over the next hour, then the trader receives a large payout.
If the trader’s prediction is wrong, the payout is close to nothing.
Due to having just two possible outcomes, binary options are also sometimes referred to as digital options, or all-or-nothing options.
When traders use an online platform, they are normally trading cash options. This means that when the option finishes successfully, the payout is a predetermined cash sum, and the trader will see that their account balance increases by this amount.
Cash payouts are set in advance at around 70% to 90% of the investment amount.
Where to trade
In the past, binary options could only be traded on an exchange. This is still possible, for example the CBOE (Chicago Board Options Exchange) offers binary options on the S&P 500 and the VIX, but it is no longer so common.
From 2008 binary options have been available as over-the-counter options and since then a number of online trading platforms have made these options widely accessible to the public. Investors can trade online without having to download any specific software. This is now by far the most popular and easy way to trade binary options.
How it works?
Trading platforms usually offer cash options, because they are simple to understand and profitable for investors.
If a trader on the platform believes that the USD/EUR will decrease over the next 1 minute, it is his decision how much to invest on the trade.
If he invests $100 and the payout is 90%, he will receive the $100 back plus a profit of $90 if the asset does indeed have a lower value in 1 minute time than it does now.
Benefits of Binary Options
The growth of the binary options industry and its dramatic increase in popularity over the last couple of years has prompted many to call this the future of financial trading, the replacement of Forex, and even the very best way to make money online. Why so? Why should you be trading binary options?
- 1. Profitability: The profit on most platforms is about 70-80%, increasing to as high as 90% at times. This means that if you invest $100 on a trade, and it finishes in-the-money, you could win back the $100 investment plus another $90. Invest $1,000 and the total back could be $1,900. You are entitled to open as many trades as you wish at any one time.
2. Available at all Times: Binary options can be traded in all market conditions. Traditional investments are typically only profitable when the markets go up. However, binary options allow traders to profit in both upwards (bullish) and downwards (bearish) markets. So long as you predict the direction correctly, you will enjoy the results. Similarly, traders can even make money in volatile and fluctuating markets. Binary options can also be traded 24/7, allowing you to take advantage of all the global trends. Different markets worldwide are open for trading at different times during the day, and all are accessible to the binary trader online. Even when the rest of the world stops trading at the weekend, it is still possible to purchase One Touch options.
3. Simple to trade: Essentially you have just one choice to make - will the value of an asset move upwards or downwards? This simplicity makes binary option trading far easier than when different and complex factors are involved as with traditional investments. The precise movement of the asset, which is much harder to predict than the direction, even for skilled analysts, is not an issue or concern for traders. There are two possible financial outcomes for every trade. You know in advance the high return you receive if you finish in-the-money, and you also know what amount you receive back if the trade is unsuccessful and finishes out-of-the-money. Unlike with Forex, it is impossible to lose more than the investment amount, and so carries none of the grave risks that come with leverage. The risks and rewards are fixed and known before you open a trade. Investors are therefore able to make better and more informed financial choices