What are binary options?
Binary options are an innovative way of profiting from the financial markets, without needing a trading or financial background. Deriving its structure from the term binary – zero or one – a binary option is an option which is bought whose outcome is known from the start and whose result is all or nothing (theoretically – though there are some exceptions as demonstrated on (www.anyoption.com).
A binary option trade is like saying: “I predict that at the end of the day my chosen asset will be higher that it currently is. If I’m right, then I’ll get the payout determined by my online trading platform. If I’m wrong, then I will receive nothing, but I will never be asked for more money”.
How does a binary option trade work?
The components of a binary option trade are simple yet with enough variety to enable a personalized trade. The first item to be selected is the asset itself – this could be a currency pair/forex (e.g. USD/EUR), stock (e.g. Apple), commodity (e.g. Gold) or index (e.g. Nasdaq). On the anyoption™ platform there are more than 60 assets on offer covering the American, European, Asian and Middle Eastern markets – something for everyone to choose from. Next, it’s time to select the expiry time. Depending on the platform chosen this could be as near as the end of the next hour, or the end of the day, or week, with the anyoption™ platform offering monthly expiries too. The third step is to decide on the direction in which the asset is predicted to move – UP or DOWN, otherwise known as CALL or PUT. Once the option is bought, the price that the asset is bought at is known as the strike price.
CALL – a call option is bought when it is predicted that by the expiry time the price of the asset will be higher than its strike price.PUT – a put option is bought when it is predicted that by the expiry time the price of the asset will be lower than its strike price.
What is a binary option’s outcome?
Once the binary option has been purchased, the investor must wait until the expiry time to discover whether his prediction was correct. A correct binary option trade is known as being ‘in the money’ and an incorrect trade is known as being ‘out of the money’. Hence, a CALL option which expires above its strike price is ‘in the money’ and one which expires below its strike price is ‘out of the money’. Conversely, a PUT option which expires below its strike price is ‘in the money’ and one which expires above its strike price is ‘out of the money’. Now for the profits – the binary option’s return rate! ‘In the money’ options will receive the percentage payout offered when buying the option. This will change depending on the platform. On anyoption™ this is between 65-71%. As per their name – binary options – ‘out of the money’ trades should result in a loss of the investment. However some websites offer percent refunds for these trades; with anyoption™ offering an industry high 15% refund. The simplicity of binary options means that a trader does not need in-depth knowledge or experience in the financial markets. Reading the papers and being aware of his surroundings can be enough to gain insight on the likely direction of assets and to bring about a successful and highly profitable binary option trade.
What assets are available?
The number of underlying assets available when choosing your binary option trading platform is a huge attraction to a site. The greater the variety: the more able an investor is to create a personal trade; the more possible it becomes to react to and profit from financial news; and the more enjoyable the trading experience. This is seen on the anyoption™’s platform which offers over 60 underlying assets, an industry record. There are four types of underlying assets on which a binary option can be purchased: forex, indices, stocks and commodities. Forex binary options/currency binary options: these are also known as currency pairs since they are made up of 2 currencies e.g. USD/EUR. Forex, or foreign exchange, reflects how much of one currency is needed to purchase a unit the other currency. The first currency (in this case the USD) is known as the base currency and the second one the quote currency. The stronger the base currency, the higher the number of the quote currency (i.e. it will take more Euros to buy one USD). This is vital for international trade and investment. It allows two countries who normally trade in their own currencies, to trade between themselves. Stock binary options: stock shows what a company is worth and it is represented in shares. The beauty of stock binary options is that an investor is not obliged to buy the shares themselves in order to benefit from the activity of a company. Hence stock binary option trading allows an investor to trade, with fewer funds, on a company’s performance. anyoption™ has a wide variety of stock assets available covering the USA and Europe.
Index binary options: a group of several stocks is known as an index. It enables an investor to gain exposure to a wider section of the market in one single trade. Since it is the performance of several companies which affects the index, trading index binary options is generally a more reliable investment, however they are interesting since external factors can influence their movement. On the anyoption™ platform an investor has a wide choice of indices from the USA, Europe, Americas, Asia and the Middle East.
Commodity binary options: a good which falls under the word commodity is that which is easily interchangeable with goods from another producer. On the anyoption™ platform this includes oil, gold, silver and copper.
Advantages of trading binary options
Understanding how to trade is always important before an investor begins to invest. Once he discovers the advantages that binary options trading offers, it will inevitably enhance the enjoyment of this type of investment.
Here are some of the benefits associated with binary option trading:
- Controlled risk – when a binary option is bought, the percentage payout is already known, both for in the money and out of the money outcomes. The risk is therefore controlled since an investor knows exactly how much he risks losing – he will never be asked for more money once the binary option expires.
- Profitability – since it is the change in direction which is important and not the magnitude change, a larger profit can be obtained from a smaller investment. The payout, for example 70%, is guaranteed no matter how large or small the investment.
- Simplicity – though research is always needed before an investment is made, binary options are much more simple than their counterparts since only a correct direction change is needed, rather than a large magnitude change.
- Accessibility – binary option trading opens up otherwise expensive markets to the general public. No longer restricted by high share prices or rising commodity costs, everyone can invest in a binary option, with the investment level that they choose, with the same payout amount offered equally to each investor.
- Flexibility – the anyoption™ platform is available internationally and in 5 different languages. With the introduction of One Touch options which can be bought over the weekends when the markets are closed, binary options are a 365 day a year product. Additionally, the availability of over 60 forex, stocks, index and commodity options with the choice 4 expiry times, makes binary option trading on the anyoption™ platform flexible and personable.