In finance alternatives are a kind of financial asset which people are trading in. Within the class of options comes the binary option. The name originates from the characteristic feature of these options. The binary options are called so because the payoff can have 1 of the 2 possible outcomes, the outcomes being a fixed monetary amount of payoff in form of a fixed asset or no payoff at all. Further, the binary options can have two kinds; these are cash-or-nothing and asset or nothing. In case of cash or nothing category, the financier either gets an agreed upon amount in monetary terms while in case of asset or nothing it gives the investor an asset for a payoff or nothing. In other words the Binary Option Trading is way better a strategy of investment wherein the investor takes a yes or no position on a certain financial asset. Depending upon the cost of the asset at the time of maturity, the investor either gets the payoff or nothing. Since the outcomes of the binary options are easily comprehendible they can be understood with much more ease than any other traditional alternative.
Among the traders it is well known that any recourse can be settled in 2 ways. Depending upon how the settlement takes place they are either called the American or the European option. The Binary option however is a kind of European style. Hence it is settled only on the date of maturity and not before that unlike the American one. If at the time of maturity the investor’s choice stays in- the- money then the buyer or the seller will receive a predetermined amount of money from the other party. If however it settles out –the- money, the buyer or seller do not receive anything. Hence while using a binary option an investor can have indefinite amount of upside gain depending upon the price at the time of maturity while the person is safeguarded from the downside risk as it is only limited to the upfront premium payment made by the investor. As compared to the traditional option, the binary options pays the full payout, this is irrespective of the fact as to how above or below the options settles as compared to the strike price. Even though these options are accompanied by the term all or nothing, the financier may earn something at the time of maturity even if it ends up out-the-money. Binary options are also called the digital alternative in some places.
Binary Option Trading Strategy
In order to successfully trade in binary options, one may follow the following strategically designed steps.
Strategy #1 – Learning Option Outcomes
While investing in binary options the trader needs to assess and anticipate the expected future movement in prices of the underlying assets. There are 2 ways of making an investment in Binary Options which are through either a call or a put option. While the latter is bearish in nature, the former is bullish. Hence while anticipating a decline in the market price , one should purchase a put and if the situation is vice-versa then one should purchase the former one. If an financier has such information about the expected movement in the cost of the underlying asset, he should invest and take advantage of binary options strategy.
Strategy #2 – Decide Your Position
This requires analysing the market with respect to the value class you are interested in. If your prediction of market is correct and you have placed your money on the same, you can earn a much higher return than what you expected.
Strategy #3 – Learning How A Contract Price Is Determined
Normally, the cost of a binary is as per the market’s perceptions about the price movements. Hence if he value of a certain contract is $10 and the last trading was consummated at $9.6, it is an indication that about 96% market believes in the occurrence of the contract.
Binary Option Trading Review
• As compared to traditional options, trading in to this alternative is much easier . The only requirement here is to have a sense of the direction of movement in expenditure underlying the contract. This is in contrast with the nature of traditional options; one also needs to have the idea of the magnitude of the cash flow.
• Binary options are better suited for the risk averse investors. This is because while Binary forex offers the opportunity of earning a gain from favourable price movement, it also helps investors avoid risk by defining the extent of the loss that it can incur.
• Binary options are very apt for application of both fundamental and technical analysis strategy so as to enhance the accuracy of prediction of the cost.
• Another major advantage of binary options trading is that it assures the stockholder of a certain pay off if the market movement is favourable to their contract. The payoff remains the same irrespective of whether the market price is favourable by a $100 or just $1.
• Binary options strategies contract are tradable over shorter period of time. Hence one can see a binary contracts to close many times within a single trading day. This gives the investor with numerous trading options. It makes the investment more flexible for the traders.
Given all such benefits and low risk vulnerability of binary options strategy, it is very safe to say that these are one of the most promising financial assets to trade in. These not only assure you of a fixed pay off while trading in these binary options but also limit your downside risk. Hence you might as well quit your job and try trade binary options and get your money doubled.