The word “binary,” in the general sense, describes something as being composed of or related to two things.
If you’re a fledgling trader with limited experience in trading or a low appetite for risk, then binary options may appeal to you the most out of all the possible choices. As the name implies, binary options (also known as digital or fixed rate options) are conceptually straightforward — you speculate on the movement of an asset’s price within a given time, with the only two choices being that it will rise or it will fall. Up or down. One or the other.
When you trade binary options, what you need to correctly predict is the direction of the asset (which could be anything — indices, commodities, stocks or foreign exchange). You do not actually purchase or sell the asset. You must set your preferred expiry time or date as well as a strike price. If you believe that the market is rising, you should purchase a “call.” If you think that the market is falling, however, you should purchase a “put.” To make money from your call, the price should be above the strike price at the expiry time you indicated; if you purchased a put, you make money when the price is below the strike price at the expiry time.
The potential payout or reward is already known to you at the opening of the trade — it won’t be increased or decreased by how far or how close the price is to the strike price you selected. Typically, payouts would be between 70 and 90 percent of the original investment you made. Likewise, risks are also transparent for investors; they have a clear idea of what they stand to lose or gain before they make their speculation, and this is what makes binary options attractive to investors. You receive your agreed payout if your prediction is correct, and if your prediction is wrong, you lose only your initial stake and nothing more.
For beginner individual traders, getting started on binary options trading is simple. Extensive knowledge on the asset you mean to speculate on isn’t required, so you don’t have to be an expert to make a trade. Accessibility is also an important factor; since binary options are generally Web-based, anywhere with a computer and a stable Internet connection would be a good place to trade. Trading binary options is the relatively easy and low-risk way to earn additional income and set up a more secure financial future — and all it takes is choosing between two options.