Binary options are an easy to use financial instrument that you can use to gain large profits within short amount of time. This article explains the basic terms in trading binary options and it can be your first step in learning options trading.
Binary option is a financial instrument that allows you trade in a verity of financial assets from different categories, most options trading websites allows you trend on indices, currencies, commodities and stocks. Binary options sometimes referred as digital options, the principal behind the two names is similar: like the binary code, that uses two-binary digits 0 and 1, in binary options the investor have to choose whether he invests on call option or put option.
The meaning of call option is a prediction that the price of an underlying asset will go up in the time that passes from strike time (strike time is the time when the option has been bought) and the option expiry time.
Put Option is a prediction that the price of the underlying asset will go down during the time that passes between strike time and expiration time.
Trading in options involves three important decisions:
Choosing the asset – Binary options websites are offering a long list of assets to trade on, some assents are widely mentioned on news and financial internet web sites as yahoo finance and CNN money, other assets being offered for trade are less known.
My recommendation for a novice trader is to start with assets that are more popular, it is not promising you 100% success, but it is easier to understand its behavior.
Expiration time – There are 2 expiration times for every option – hourly expiration and daily expiration, the daily expiration option expires at the end of the trading day.
Choosing the amount of investment – binary options gives you 75% profit in case that the option expires in the money; 75% profit is considered huge payoff if you compare it to what is being offered on forex, but there is risk involved in it too.
In case you are a new trader and you wish to avoid losses at the beginning, than I suggest that you’ll start with small amounts, that’s until you’ll feel confident enough to invest in larger amounts and by that maximize your profits.
The key to successful investments is knowledge, the more you know about the asset, the greater your chances are to predict the asset direction, remember all you have to predict is whether the price of the asset will go up or go down, the amount of change don’t mean a thing as long as it is in the right direction.