What Is Binary Options Trading All About?
Binary options trading has always been popular, however, this investment fad globally exploded around 2008 or ironically when global economies began to fall. Originally known as digital options, binary or the name "two values" was added to give a simpler explanation for trading options. Binary is defined as two values or up and down movements. Binaries rely on underlying assets or derivatives. You can trade in commodities, the forex (foreign exchange market), commodities as well as stock indices.
The popularity of internet binary platforms has literally blemished this trading industry. Internet marketers have flooded the net with deceptive information and products and there are hundreds of fly-by-night brokers who lure investors in with promises of high yields and low output. With this said, trading in binaries can be called the "poor man's" trading opportunities. The payoff is all or nothing and the amount invested can be as low as $100.
Binary Options versus Traditional Options
Working binaries requires that you, the investor, predict the price movement of an underlying asset. This is different from traditional options where you do not need to know the direction of the price movement. Learn how the movement is determined by studying the history of an asset. For example, if the current value of an asset is $100 and the last trade was at $95, know that 95% of the market predicts that an economic event with this asset will happen. Predict the price falling from the $100 mark and you are in the money. You only need a sense of price movement of underlying assets. You don't need to now the magnitude of the movements or the exact price; only that it will move up or down.
Binaries have controlled rise to reward ratios. The risks and rewards are predetermined at the time of the contract. If you are trading in traditional options you have no boundaries of risk and reward. This makes the gains or losses almost limitless. You can make more money with traditional options, but there is high risk.
Binary option trading offers contracts that are short-term. You can have an expiry date as far away as a week or as short as fifteen minutes. Binaries close many times throughout the day while traditional option trading generally lasts as long as a quarter or for years. Trading in binaries can provide you with several investment opportunities at the same time. Generally traditionally trades are limited to one per day.
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