Definition of Binary Options
In binary options there can be two outcomes- win or lose. It is the easiest from of option as there is a fixed payout received if you win and in case you lose, the initial amount invested is lost. It happens automatically as the option holder does not have the option to buy or sell the asset. In binary options you just need to predict ‘call’ or ‘put’. By choosing the ‘call’ option you predict that the price of the underlying asset will rise in a given time period. The other possibility is when you predict that the price of the asset will fall which is known as the ‘put’ option.
Steps in Binary Options Trading
Choosing an Asset:
This is the first and the most basic step when choosing to place a binary investment. The trader has the option to choose from commodities, forex or stocks. This type of investment does not require you to buy or sell the asset. This is one of the most underlying features of binary options.
Choosing the duration:
The next step in binary options is to decide on the time period for which you wish to trade. This can range anywhere between 10 seconds to 365 days.
Choosing the trading method
Below mentioned are the different ways in which you can trade the binary options for your chosen asset.
In this you can trade an asset by selecting call or put as your purchase option. If you are correct then you end up profiting.
Touch or no touch Trading
In this you can profit by choosing whether the price will touch or will not touch a particular level.
Double Touch/ Double no touch
It is works similarly to touch or no touch method but here two points are set as targets. It is growing in popularity among traders.
60 Seconds Trading
This type of trading involves expiry time of only 60 seconds. The wait time is very short and hence the result is depicted soon.
Pair trading enables you to trade assets against each other. One has to predict which asset will outperform the other in a given time period.
Binary trading Explained
Binary options give the trader an opportunity to trade with capped risk and capped profit potential. The result of the trade is based on a ‘yes’ or ‘no’ theory. Let’s understand it with an example.
Situation: Will the price of gold be above $ 1,200 at 1:00 pm today?
If you believe the price will cross this mark, you buy this binary option. If you feel that the price will be below this level then you sell this binary option. Just like any other financial market, there is a bid and offer price. Until the option expires the bid and offer price will fluctuate. The trader can close his position before the expiry of time period in order to lock in a profit or reduce the loss.