If you have learned about option trading and don’t know anything about binary option trading, then you have missed on a large part of options trading. Many investors have been trading in options but still don’t know much about binary options. For traders not willing to get stuck in investments that have a long expirations period or long holding time like in stocks, mutual funds, bonds, futures, etc, binary option trading is a hot market currently.
The amount of money one can earn from a binary option only relies on which direction the security moves. The actual amount the value changes doesn’t make a difference. At the end of expiration, the pay out will be equal, even though the security shows a jump of ten dollars or 20 dollars. Let us understand the operation of the binary options with an illustration. Say for example, if you invest hundred dollars in a security and make a binary option contract of fifty percent pay out value for an upward movement of security, then you’ll make hundred fifty dollars if the security shows a jump of even a cent at the expiration time. Similarly, if you had traded the binary option contract for a dip in the prices and the security would have actually shown a dip, then also you would arrange to have earned a profit equivalent to the pay out.
Buyers enter into contracts to purchase an underlying asset, commodity or stock at a fixed price. The time of expiry is fixed and generally in a very near future timeline. The fixed prices are the strike prices and profits and losses are generally known in the early part of the contract. The amount of the investment required is determined by the holder of the asset. In binary option trading there are only two outcomes. The options expire in the cash and the investor receives up to 80% payout or the trades expire out of the cash and the investor receives nothing. All of this will be predetermined.
Binary options were first traded in Europe and became extremely popular. They are traded extensively in the key European exchanges like the EUREX. Though formerly only used in Europe, many parts of the United States are now engaging in this kind of trade. Binary options are a low cost, quick way to engage in the stock market. They also have a large return potential. Binary option trades are done on an hourly bases and owing to their simple up and down structure; they can be readily understood even by the beginners.