In the world of investment, the binary options trading have come up as an exciting and popular type of investment. In this trading option, the investors do not have to purchase the asset. All they need to do is that they will have to predict on which direction they estimate the asset to move. There are different types of assets which can be used in this trading option – currencies, oil, forex, etc. It should be noted that when you purchase a binary option, there will be a contract which will mention that the buyer or the investor will have the right to buy the concerned asset within a specific time period at a fixed price from the seller.
Binary options trading are known by different names. The different names include digital options, all-or-nothing options, Fixed Return Options (FROs), etc. All these names stress on the 0-1 nature of the options. This is so because there are only two possible outcomes of trading a binary option and the investor should understand both these outcomes in details before investing money or purchasing the option.
How do the binary options trading work?
In order to know how the binary options trading work, you will have to take the help of an example. Let’s consider that an investor purchases an Apple binary option worth $100. He is of the opinion that at the end of the day, the share of Apple will be greater than where they stand right now. If, at the end of the day, it is found that he is correct, then he will get his share of return on the investment. Some of the binary options trading companies offer around 71% return on the investments.
Uniqueness of binary options compared to regular options
There are certain differences between binary options trading and regular vanilla options. Let’s take a look at the differences between the two:
Instant profit and flexibility: Binary options are known for their flexibility and instant profit. They have short term multiple expiry times which will help the investors make instant profit if they go for binary options trading. Also, compared to other investment options, they are much more flexible in nature.
Proper outcomes demarcated: If you are investing your money in binary options trading, then from the beginning of the deal, you will know that there are two outcomes of the deal. Also, you know how much you earn when you make a profit and how much money you can lose. In case of other investment option, the investor has to pay per contract. Thus, the investor will lose money or gain a profit based on the difference of points between the strike price and expiry level.
Choosing asset with care: If you wish to trade binary options, you will have to be very careful about the type of asset you choose. This is mainly because after choosing the asset, the investor will not be able to sell it off immediately. He will have to hold on to it until the expiry date.
Hopefully now you have a clear idea about binary options trading!