Binary Options - What they are ?
- Published: Tuesday, 04 November 2014 11:09
- Written by Stephan
In the strict sense, the term "binary options" is found in the field of mathematics. In a binary system, only the numbers 0 and 1 play a role. And this is where the parallel to derivative binary options trading is evident. Here, too, there are only two possible events. Either traders made the right decision and the predicted outcome actually occurs, or not.
In the former scenario, it is said, in the technical jargon, that the Option "ends in the money" . Should the opposite event result, the traded options end "out of the money". Unlike, for instance in the stock market, traders do not acquire real value in binary trading. Instead, the investors can only buy an abstract claim in this case. This claim is in turn based on a specific underlying value.
Either ... or - options offer only two possible outcomes
These values, which are also referred to as trading instruments, assets or property assets by binary options brokers come from different markets. Usually, traders can choose the fields that interest them from Currency pairs, indices, stocks and commodities . In order to start trading, investors need access to a broker's trading platform. These offer their customers access to the various international markets.
Up to this point, we have made great strides in answering the question "What are binary options?" Traders, however, need to first know the factors that could lead to decisions for or against a broker. The traders should, of course, be well acquainted with the usual trading types, in order to understand the different ways of achieving returns in the face of differing risks and time frames.
Call and put trading as standard for all brokers
The classics among the binary trading types is strictly speaking the trading with “call” –or- “put” options, which are also known as „High“ und „Low“. Here, brokers advertise with yields of up to 100 percent. The average earnings on this order type are, however, usually about 70 to 85 percent, where the percentages are always always indicated in relation to their investment.
It is clear that traders are able to influence the potential gains by the level of their risk appetite and investment. Here, traders ought to be aware that the positions they opened may in principle always end at a loss upon expiry of the term - at least without the utilisation of extra features, such as those made available by many brokers.
Particularly high yields are characterised by high risk
Claims of maximum returns of up to several hundred percent in the so-called "High-yield mode", which is particularly risky, should not lead us to underestimate the underlying risks. Indeed, even option traders with extensive experience are not immune to losses. Unforeseeable political and economic events may lead to a completely different course of the underlying value than traders had anticipated in the trading centres.
This is often likely to result to a lose of the entire investment. What are binary options - this question is linked with the technical background of binary trading. In short: Trader-to-be need to understand how trading works. This is easily explained in the already mentioned call and put trading. Where: In the strict sense, binary options is basically all about whether or not the events anticipated by the dealer correspond to the final outcome.
Minimum deposits in accounts and minimum investment per trade
In all cases, it boils down to the underlying value at the expiration of the respective term. The differences are rather in the way the trading types work and what requirements are demanded by the broker at the start of trading. Point 1 here is the minimum deposit that is required in connection with a real money account - regardless of the offers of any demo account .
The rule is: New deposits to the tune of 50 to 500 €.
Traders encounter different values in comparison to binary options brokers, even with minimum trading quantities. Some brokers allow the opening of positions only from one euro, other providers require an investment of 25€ or more. Should there exist a demo account with limited credit, this minimum investment determined how many test orders traders can execute on the broker's platforms. This is, among other reasons crucial, because all possible trading options have to, of course, be considered in the test. Other typical order types besides the call and put trading include:
- the range-trading
- One-touch options (especially on weekends)
- 60-second- options (partly also shorter maturities)
- Option Builder
These trading types are known under alternative names in some places. Through the so-called "Option Builder" for instance, brokers often allow customers to develop their individual options, where underlying values, maturities, and investments as well as the anticipated return (higher yield = rising risk of loss) are defined. Important extras are price limits, stops and other order extras that, just like the trading types elsewhere, are still subject to in-depth analysis.