Binary Option Trading – what does it offer and what is important?
Binary option trading is a relatively new form of investing, in which many of the complex variables associated with trading are removed, allowing for a much simpler assessment of an asset. In binary option trading an investor looks at an underlying asset, and makes a judgment as to whether it will increase or decrease in value by a fixed time. If the expiry price of the asset matches the assessment, the binary option trader is considered to have finished in-the-money, and makes a sizable return on their investment; if the expiry price does not match the assessment, the trader has finished out-of-the-money, and loses the bulk of their initial investment.
Offers a variety of trading assets
Many different assets may be used in binary option trading, but most commonly trades are made on Forex currency pairs, high-profile stocks, major commodities, or major indices. Click here because of the nature of binary option trading, virtually any asset can be used, but generally higher-profile assets are chosen to ensure a high amount of trading occurs.
Price direction is important
One of the major differences between binary option trading and other types of futures trading is that with binary option trading the degree of shift in asset price is irrelevant – all that matters is what direction the asset price moves in at closing. Similarly, in most types of binary option trading anything that happens before the expiry time is also irrelevant – all that matters is where the asset price finishes in relation to where it was purchased.
For example, a binary option trader might choose to buy a $100 contract on Gold. They would see the asset price of Gold is $1178 at the time they are considering purchasing it. They would then look at various factors, such as global economic announcements, and the state of key currencies, and decide that they think the price of Gold would see an overall decrease by the expiry time forty minutes later.
In that case they would purchase a Put contract, indicating the direction they believe the asset will move. If, at the expiry time, the price of Gold was at $1176, they would be in-the-money, and receive anywhere between $165 and $185, depending on the specific contract. If, on the other hand, the price of Gold finished at $1179, they would be out-of-the-money, and receive anywhere from $15 to $0 back.
Precise risk determination
The nature of binary option trading means that investors can assess their risk considerably more exactly than in traditional futures trading. This is because they don’t have to worry about estimating how much money they can potentially earn or lose on a given transaction – since both profit and loss are fixed they can calculate accordingly. This is one of the major reasons binary option trading has become so popular in the last few years. At the same time, binary option trading offers the potential for large gains in short periods of time with relatively small initial capital – because a one hour transaction can potentially yield a 185% return, an investor with a strong strategy can see immense growth of their initial capital, even within a single day of trading.