What are Binary Options?
Binary options are high return, short-term investments.
Based on exotic options, which are only traded on private markets, binary options are traded over the counter and are available 24 hours a day, 7 days a week. A binary option, also known as a digital option or an all-or-nothing, is a trading instrument with a fixed return that is determined at the outset of the trade. A trader will receive a predetermined payout if the binary option expires in-the-money.
He will lose a predetermined amount of his original stake if the option expires out-of-the-money. The beauty of trading binary options is the inherent simplicity. If a prediction is correct, the trader receives a refund of the stake plus a return on investment that is typically 71-88%. If the trader is wrong, the broker will return a small percentage of the original stake.
All markets – currencies, stocks, commodities, and market indices – can be underlying assets for binary options. The degree to which the option closes in or out-of-the-money does not matter as it does with a traditional option.
Unlike traditional options, binary options do not have set prices: the trader decides upon the amount of money he wants to risk and invests that amount when he buys the option. Furthermore, the shorter duration of these contracts makes binary options more suitable for short-term trading than their traditional counterparts.
In the past few years, online binary option trading has grown exponentially. Digital trades can utilize many more underlying assets, and have much more flexibility in their timing, strike prices, and contract options. Since 2009, they have become very popular among traders as a way to control risk in options trading, in turn allowing for more dynamic strategies to be developed.
Finally, constantly evolving technology better facilitates digital trading and allows investors to make more lucrative trades.
The beauty of trading binary options is the inherent simplicity.
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More important information regarding this topic:
- » Binary Options Glossary of Trading Terms Part II
- » 12 Good Reasons to Invest in Binary Options
- » Why are Binary Options Enabling Traders to Compete in Tough Markets?
- » Binary Options Glossary of Trading Terms Part I
- » Platform Rates and Security of Binary Options Brokers