Binary or digital options differ from traditional trades in many ways. Once termed exotic options and available to only a select rich investors, now anyone can trade in binaries through website platforms. Binaries offer predetermined wins and loss and the results are set payouts. An investor estimates that an asset will rise or fall over a period of time. “Call” options are made if the prediction is for an asset to rise and a “put” option indicates that a trading asset will fall. If the investor’s estimate is successful, a set payout amount is received. On the other side, if an investor’s prediction fails the amount invested is lost. Keep you options open and only trade if you can afford to lose your investment.
Since 2010 the popularity of binary options has doubled due to the simplicity of trading as well as the possibility of very quick gains. A typical binary trade could be illustrated in the following manner.
An investor checks the wheat commodities market early in the morning. It is predicted that wheat will drop significantly in price close to the end of the day. The markets are somewhat stable and this makes prices highly predictable. As a potential investor, log into your trading account and you read that “in the money” accounts on wheat are up to 75% in payouts, but the losses are as high as 90%. With these figures in mind, the investor invests $1,000 on a “put” option (or prediction that the price of wheat will continue to fall) and sets the expiry time at 3:00 pm. As you watch the wheat market, the price actually falls from $5.00 to $4.99 and by the 3:00 expiry time wheat is essentially at $4.90. The investment has ended “in the money” and a 75% payback is received. The original $1,000 is now $1,750. Within a very few hours, a substantial sum was made on a relatively small investment.
Do note that binary options carry risks that are significantly higher than regular stock trading. They are less risky than the traditional ones and you will always know what amount will win or lose. Research a number of assets in the commodities markets, stock markets and monetary markets before engaging in any type of trading. Watch trending assets to determine which ones are rising or falling or how secure the prices are. Use an on-line trading platform to make practice puts and calls. Their simulator will give you an opportunity to trade without losing “real” money. When you are comfortable begin making investments using actual money and genuine trades. Make sure that you are completely familiar with the terminology, expiry terms and amounts you will win or lose before trading in binary options.