Binary options have captured the acceptance and endorsement of investors world-wide in recent times to the point that their reputation is improving faster than any other type of financial speculation. They have attained this remarkable standing mainly because of their primary feature, which is their ease-of-use.
For your information, they are also known as binaries, fixed returns and digital options. Prominent analysts rate binary options as a more user-friendly investing vehicle than any other prevalent methods, such as trading stocks or currencies directly, etc. Consequently, you should seriously consider investigating the intriguing world of binary options, especially if you are a beginner or a trader of limited experience.
1. Introducing Binary Options
Explicitly, binary options are legal arrangements that guarantee the precise payout of refunds and returns at a pre-specified expiry time. They are constructed utilizing underlying assets that can be selected from one of the four main investment categories, i.e. indices, currencies, stocks or commodities.
One of the important features of binary options is the traders do not have to perform extensive due diligence on these underlying securities, although such studies can improve results. In addition, you do not need to exert efforts devising complex money management strategies because they are inherent features of binary options. If successful, then you can expect to collect a return than could be as high as 85% of your wager. Remember, that price just needs to be one trading point above its opening price for you to end in-the-money.
2. How To Initiated A Binary Option Trade
Without doubt, the most attractive feature of binary options is their simplicity. This is because you will only need to assess two important factors when instigating a binary option trade. You will need to predict in which direction you think the price of the underlying asset will proceed. Very importantly, you do not have to exert any effort to assess the size of the movement. You are also required to choose an appropriate expiry time.
Once done, you can then proceed to open a binary option position after first deciding on a suitable amount to wager. If you evaluate that price will finish at least one trading tick above its opening price at termination then you should activate a ‘CALL’ binary option. In contrast, you should open a ‘PUT’ binary option if you deduce that price will record a value that will be at least one unit below its strike value at expiration.
3. Why Trade Binary Options?
To answer this question, compare the differences between trading Forex directly as opposed to doing so using binary options.
With the first choice, you would have to contend with resolving the following types of complexities:
3.1. Accurately positioning stop-losses and target-profits.
3.2. Devising or attaining a proven risk and money management strategy in order to restrict your risk exposure.
3.3. Researching and assessing the size of the price movement your chosen currency pair will make and over what time.
In comparison, trading Forex using binary options is a much simpler affair.
3.4. Price needs to finish just one pip in your favored direction to be in-the-money.
3.5. Will know exactly your rewards and risks before contract execution.
3.6. Just need to assess the direction in which price will move.
Even this quick analysis clearly demonstrates the simplistic power of binary options. You should now also appreciate why they have taken the market by storm in such a relatively short period of time.
The article was kindly provided to us by Adam Grunwerg. Adam is a binary options trader and enthusiast and currently runs his own blog at at http://www.binaryoptions.com