Binary options are also known as two-way options, fixed-return options, digital options, barrier options or all-or-nothing options. They are simply options based on two possible outcomes. Binary options trading is, therefore, a form of investment done through predicting the trends of various assets. It is an option where the payoff is structured as a fixed amount of reward if the option expires in the money and nothing if it expires out of the money. It is simply based on a yes or no proposition.
Key things to note about binary trading options
- Your risk is limited to your trade amount; you cannot lose more than the amount traded.
- Losing trades costs you; you lose your trade amount.
- Your payoff amount is always stated before you make a trade. If you win a binary options trade, you win a fixed amount.
- Most binary brokers will allow you trade with as little as $10.
- The business involves plenty of risks. Therefore, do not invest more than you can afford to lose. It can be devastating.
- The trade does not involve any exchange of asset ownership. You only attempt to predict the behavior of the property in a given period.
- If you intend to earn from binary options trading, you have to win most of your trades.
Types of binary options
As a new trader, learning that there are different types of binary options can be a bit confusing. But one can always choose the type that suits their trading needs best. For experienced traders, the market conditions and how they expect the markets to react to external conditions is what determines the method they choose.
It is the most common binary option and is also referred to as the UP/DOWN option or the CALL/PUT option. A trader places a CALL the anticipation is that the price will end up above the entry price after the expiration of the contract, and a PUT is costs are anticipated to finish below the entry price.
This option comes with pre-defined rates required to win the trade. Instead of just predicting if the assets value will increase or decrease, a trader gets to predict a level it will reach or not reach. Options are only purchased in the weekend when the trading markets are closed and then trade during the week. This means a trader has five days and chances to hit the target during weekdays.
60 Second Option
This option expires in 60 seconds and is advantageous as the value of the asset is seen to be moving in one direction. It is ideal for those seeking quick rewards or those able to react quickly and efficiently to sudden market changes.
Boundary options are also an alternative method. Some brokers will also provide their methods or allow traders create their own.