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Binary Options Trading:- The Simplified Version of Online Trading
Binary Options Trading is an innovative investment venture where anyone can easily make profit from the price variations of a wide range of dynamic stocks, commodities, currency and indices. It has gained swift popularity because it provides traders of the simple option to make one of the two possible trading propositions, which can be either ‘yes’ or ‘no’, while placing a trade. These binary options are estimates of an underlying assets performance and its price during a given time frame.
This trading method, as suggested by the word ‘binary’-meaning ‘two parts’; provides only two investment possibilities for the trader to predict and choose between. The trader needs to place either ‘Call’ or ‘Put’. The “Call” option predicts that the price of the asset will rise, whereas, the option “Put” predicts a fall in the price of an asset. The binary option trading method has also been called as the high/low trade
How Binary Options Trading Work?
Binary options provide a method to trade markets with capped risk and capped profit potential. Underlying assets are the backbone of binary option trading and their movement determine a loss or win situation.
Choosing an asset is the first step of the trader’s investment. A trader can chose to place a “call” option in hope that the price of the chosen asset will rise higher than the starting price, by the time trading period comes to a close. If the price rises, a profit, the value of which is predetermined at the beginning of the trading period, is earned. On the other hand, a trader can chose to place “put” option when he expects that the price of the chosen asset will be lower than the starting price by the end of trading period. If the price of the asset moves lower as expected by the trader, he wins the trade and receives a prearranged payout as profit.
Assets that can be traded as binary options:
- Indices – One of the most traded binary options is based on indices such as Nasdaq, Dow Jones, FTSE, Nikkei, CAC4, DAX and Hang Seng.
- Currency and Forex – Trading two different currencies against each other is a profitable strategy. Combinations for all the major currencies such as USD, EUR, GBP ,JPY, CAD and AUD can be traded against each other.
- Commodities – Popular type of binary option which allows the trader to trade on the value of fixed commodities without the need to actually purchase those assets. Commodities such as Gold, Silver, Oil, Corn, Coffee and copper are mostly traded.
- Stocks – The biggest and most interesting companies such as Google, Deutsche Bank, Coca Cola and many more can be traded by buying and selling Stocks and Shares.
There has been an exponential boom in Binary Options Trading driven by investors who prefer knowing in advance exactly what and where they stand to lose or gain on each trade. Though, very simple in executing, this method comes with its own share of positives and negatives, as listed below:
- One major advantage is that the risk and rewards of the Binary Option Trading are known to the trader. No matter how much the market moves in favor or against the trader, he will have only two outcomes: to win or to lose a fixed amount.
- There are a range of different expiry times available to the trader, which can be as short as just 60 seconds or as long as one month.
- Trader never has to actually purchase asset that he hopes to increase or decrease in value during any given time period; for example, if he chooses to place a binary trade based on the future value of gold, he can simply put money on his prediction about whether the price will rise or fall, without having to purchase a gold bullion. Hence, there are no liquidity concerns.
- The major drawback of call-put or high-low binary option trading is that the reward is always lesser than the risk; which means that a trader’s prediction must be right a high percentage of the time to cover losses.
- The Over-the Counter (OTC) market are unregulated, which offers only little oversight in case of a discrepancy, leaving the traders susceptible to unscrupulous practices.
- Since no underlying asset is owned; the binary options trading is just a bet on an underlying asset’s direction.
Binary options trading can thus be seen to have a low barrier to entry, because of its simplicity. However, one needs understand it and be comfortable with the working of binary options before starting trade with real capital.
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