Binary Options involve predicting the price movement of an underlying asset over a certain time period. Binary Options provide access to stocks, indices, commodities and foreign exchange. The options can also be called a fixed-return option.
If a trader wagers correctly on the direction of the market, and the price at the time of expiry is correct, the trader is paid a fixed return. A trader should select the asset class(es) with which he feels most comfortable and knowledgeable.
Since there’s no commission or spread involved, trading does not involve the purchase of any underlying assets and the profit from your trade is available immediately.
As with most types of trading and investing, Binary Options traders will come across a basic trading vocabulary that appears in our glossary. We suggest you become familiar with the basic terminology before you begin trading.
Binary Options, or Digital Options, are usually traded OTC across all assets in financial markets, but are more commonly used within the Forex and Interest markets. Numerous stock exchanges have recently produced listed Digital Options on selected stocks, commonly known as FRO (fixed return options). Today the CBOE offers fixed return options on S&P500 and VIX. Moreover, 20 stocks were listed on the AMEX in 2008.
Advantages of Trading Binary Options
Simplicity – All a trader needs to do is choose the direction they think the value of an asset is going to go within a set amount of time. For example – Will the Facebook stock price increase or decrease by the time the option expires?
In order for a trader to be “in-the-money,” a winning trade only needs to expire a single pip in the right direction or touch the range of the chosen option.
The upside and downside is known before you trade, unlike other methods of trading assets the risk and reward are predetermined allowing to control your exposure.
This is a safer option to take if a trader has an open position elsewhere in currency, stocks etc.
Excitement and opportunity
Binary contracts are being issued around the clock, allowing traders to trade on multiple timeframes. There is always an expiration time arriving, which constantly yields new opportunities for binary traders. With options lengths as short as 60 seconds, trading binary options can be the most entertaining method of trading assets.