Binary options explained

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This article shows you what binary options are. We explain this new kind of trading step by step in a easy way.

What is a Binary option?

Binary options are where the investor does not necessarily buy into the asset they are investing in, but trade on the predicted future of that asset. Binary option trading varies significantly, dependent on whether you are trading within the US, or outside the US.

bancdebinary plattform

Fig. Binary options trading at Banc de Binary

Binary, in simple terms, means "two part". Generally speaking, the trader will predict whether the market will go up, or down. The most common binary option you will come across is that of the high/low option.

There are two different options you can predict, these are known as call, which means you are predicting the price of this asset will rise, or put, which means you are predicting a fall in that asset's value.

Binary options have a range of different fee structures, payouts and risks. This is all dependent on the type of binary option you have invested in. It is often highly advised that you understand what you are investing in, to weigh up the risks and the potential payout.

What can you trade as a binary option?

There are a number of items you can trade. These can be marketable commodities such as Gold, Silver or Corn for example; or stocks from a wide range of companies available on the open market; or currency figures in major denominations such as USD, GBP and EUR.

How to trade a binary option?

BDSwiss How

Fig. The broker BDSwiss

 

  • Step 1: Choose your asset / underlying
  • Step 2: Choose a duration from 30 second till 10 month
  • Step 3: Insert the amount you will invest
  • Step 4: Choose a call-option for a increasing or a put-option for decreasing market price

 

BDSwiss

 

What is a high/low binary option?

A high/low binary option is where the trader can invest in a range of options, such as stocks, indices, marketable items and foreign exchange. A high/low binary is also referred to as a fixed return option, the reason being that this option has an end or expiry date and time. The high/low option also carries what is known as a strike price, the investor wagers which way he feels the market will go as well as price, if the trader is correct he is paid a fixed amount. This fixed amount is paid provided that the investor wagers against the market direction correctly, with the price at the time of expiry being on the correct side of the strike price. Should the trader wager incorrectly, they will lose their investment. The high/low binary option is often likened to gambling.

What other binary options are there, besides the high/low option?

Commonly, those trading in the US will find the majority of binary options are of the high/low sort; those trading outside of the US will have a number of other options which are explained below.

One of the other binary options you will often see, is known as a range binary option. The trader will wager that the market will either go up or down within a set price range. If the asset stays within that price range, when the option expires, then there will be a payout. Should the asset price be outside of this range, then the investment is lost.

There are also some brokers, outside of the US who offer 50% to 500% fixed payouts, however as with any investment, the higher the payout, the less likely it could be.

Why are binary options a good investment?

As with any form of investment, there is always the possibility that your investment could be lost. However, the positives of trading with binary options, is that the risk and reward are both known before you enter into the contract. You know how much you will lose, if the market does not go in the way you predicted; you also know how how much you stand to gain if your prediction happens. With binary options, there is also the upside of there are in general no fees to pay.

 

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