Binary options 101 - An Introduction to binary options
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In its most simplistic overview, a Binary Option is a form of speculative futures trading whereby the payoff is either a pre-agreed amount or nothing at all. Binary Options can be applied to a broad number of assets including Commodities, Stocks, Indices and even Currency Pairs. They are now more accessible than ever, and provide an incredible opportunity for traders to earn vast profits in as little as 30 seconds As with any form of financial trading and investments, there is a level of risk involved.
Trade with no preparation or understanding of the instruments, tools and processes available, and you run a high chance of running trading losses. Unlike gambling or betting where a high level of chance effects your success, the secret to success in online trading, as always, is education. A simple understanding an introduction to binary options trading the basic terminology alone will increase your chances enormously.
With that in mind, we have a brief overview of the terms and phrases used in Binary Options Trading to assist you in your Binary Options trading career.
Each form of trading has its own set of common terms and phrases. We have collected a number of Binary Options examples here to provide you with some insight the most popular expressions.
The value of a currency pair is usually presented at up to five decimal places such as, 1. An introduction to binary options trading Point is 1 number to the left of a decimal and a pip is represented as the lowest value to the right of the decimal. In this example, it would be the number 4. Other assets in Binary Options are measured in terms of pricing e. Call Option — An introduction to binary options trading is the name given to an investment that is predicted to increase in value at the time of expiry.
A profit can be made here an introduction to binary options trading your asset value increasing in an introduction to binary options trading by even one Pip or cent over its Strike Price. Put Option — This is the opposite of a Call Optionand refers to an investment that is predicted to decrease in value at the time of expiry.
A profit can be made here by your asset value decreasing in value by one Pip or cent over its Strike Price. Strike Price — This is the price of the underlying Binary Option asset at the time of purchase. When an option expires, it is compared to the Strike Price to determine if the closing price has gained in value In The Moneyor lost value Out The Money. This can refer to both Call Options and Put Options. Out of the Money —This is literally stating that you have lost the trade.
At the Money — A very rare occurrence in the ever-changing financial markets is when an option equals the market price of the underlying security at the time of expiry. This is neither a win or a loss and your investment will normally be returned to you. There are a number of variables that all traders should consider before making an investment, but a Binary Options trade is normally no more than three simple steps, assuming you have a trading account and have picked an asset with which to trade with.
Various payouts percentages will be offered to traders depending on their choices of expiry times and investment amounts. There are several, more advanced Binary Options trading methods available to traders.
Short Term Options — This is the collective term used to describe options that expire in 5 minutes or less, and are some of the most traded Options. These can include an expiry in 30 seconds, 60 seconds, 2 minutes and of course, 5 minutes. These options are typically used to trade around breaking economic events and news stories. Short Term Options are hugely popular, but can be tricky and require an understanding of Fundamental Analysis.
Touch Options — The markets have a nature to consolidate and this provides trend patterns. Traders can analyse and use these to make educated assumptions on the prospective future values of an asset.
This is where Touch Options come in. In a standard Touch OptionTraders select a specific value that an asset must reach within a specified period of time. This value is called a Trigger. In the case of the No Touch Optionsyou may select the same Triggerbut you are now investing on the assumption that your asset will NOT to reach the Trigger value by the pre-set expiry time. If you are correct, you will earn the pre-agreed return. Dependent on the broker, the TouchNo Touchand High Yield Touch Options may provide traders with the opportunity to exit an option early if the an introduction to binary options trading goes against them.
Boundary Options — These are also known as Range Options. The first price will be higher than the strike price and the second price will be lower than the strike price, thus providing a Range or Boundary.
A trader must now select if the asset will an introduction to binary options trading In or Out of that given range, within a predetermined time frame. These options can usually be closed early, and should you do so whilst in the correct range to be In The Moneyyou will not get the full pre-agreed payout, but most brokers will provide some form of a return.
Traders can usually find a High Yield Boundary Option with most traders. These work exactly like a normal Boundary option, but offer a very aggressive payout and a very strict boundary, making these high yield options highly tempting, and challenging in equal measure.
Where Should You Trade? There are several Binary Options Brokers available, and these numbers are set to increase as trading options online grows in popularity. With that in mind, what should traders look for in a broker, and how do you find the right one for you? Our reviews are comprehensive, and we look an introduction to binary options trading a number of variables in each review.
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