What are Binary Option ?
A binary option is a fixed-reward option in which you must choose between two possible outcomes and predict the outcome. You will be paid the agreed-upon amount if your prediction is accurate. If you don’t, you’ll just risk your initial investment. The term ‘binary’ refers to the fact that there are only two possible outcomes: win or lose.
What is the concept behind the Binary options?
Binary options have an expiry period, and what decides the profit or loss when the trade is closed is nothing but the price of the underlying asset which the trade was opened on. After the expiry time is over, the loss or profit out of the trades will be automatically debited or credited to the trader’s account.
Not even it’s got the simplicity of its “yes or no” theory, binary options trading is also extremely versatile. It provides you with the ability to open a trade almost on all available markets and market conditions as well as all durations possible ranging from 1 minute to even days.
You need to know that “Binary options” trading is somewhat different from trading stocks or other markets such as Forex, But It may provide traders with some benefits for them to invest in this type of trading. Let’s take a look at an example of how binary options works in simple words, then we’ll give you an overview of the benefits and also risks of trading options.
Let’s say the trader, open a trade and predicts that after 10 minutes, the price of “XYZ” will be over $50. Now the trader invests an amount of their choice in the trade and wait. If “XYZ” is over $50 at the time that the trade expires, the trader receives the agreed-upon payout based on the agreed conditions between trader and the binary broker.
But if the price drops down below $50 at the time that trade period is over and expires, the trader loses the investment.
There are many examples why options trading can be a beneficial addition to your current investment plan. The following are some of them:
- Options give you more flexibility when it comes to investing. An options contract will have a lower cost of entry into a market than buying shares outright, but still magnifying gains and losses as the stock price moves.
- You can start with really low investments, on of the most interesting things about trading “Binary Option” is that you do not essentially need to have a big capital or putting a lot of money into your trades when you start-off. You can even start with a capital as low as $50 based on the binary broker rules.
- The risk you are taking when trading options is limited, because of the fact that you can enter binary options trading with small amounts of money, the risks involved in trading will be minimal. The other thing about the binary options is that everything is clear and you know how much you are going to win or lose based on your amount you are investing. This enables you to determine the amount you are putting at risk yourself, then with a calculated risk, you can earn a big reward if everything work out in your favor.
- The profits can be really high and credited immediately. With the unbelievable short trading timeframes with binary options which can be as low as 1 minute, the chance of you predicting the correct market movement will be the highest, additional to these short timeframes, the returns could be as high as 90% in some cases if everything goes well which is prodigiously high.
You do not need to worry about the current markets trend. None of your trades would be dependent on market conditions or whether the price of an asset that you put your money on has got a downtrend or an uptrend movement. You can always open your trade and have your prediction on whether the price of an asset will go up or down in short periods of time regardless of the main asset price trend.
Aside from all the benefits that trading binary options has, Of course there are some risks that an investor should be aware of when trading options, this contains the following:
The past success of any commodity does not always guarantee its future or present results. Also trading on some markets with high volatility and unpredictability, make it more difficult to make an educated guess for your position to predict the way the market will move within the timeframe of your binary trade. In this case, historical data of that asset does not imply a safe outlook for the future status of the mentioned asset. Then you need to keep in mind that the market may not move as you have already predicted and know that the funds you invested on a trade through a binary options broker may not work out in your favor and result in loss of the investment.
At the end of the day, managing is the real key to take profit during your trading journey. Knowing the risks, you are taking and the rewards you may receive in return and of course, choosing the right place to work with, is something that the most people would always underestimate. please keep in mind that before anything else you need to find and trust a broker, where you deposit your funds into, and handles all the trading operation from then, which you may have already chosen the right one if you’re reading this!