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What every trader needs to know about binary options
As a market trader, there’s a good chance you’re already on the lookout for your next investment opportunity – where’s the sense in keeping things routine, after all? You may have heard of binary options, which are increasing in popularity amongst other traders, but know very little about them. So, what are binary options, and how easy is it to make money?
Binary options and the advantages they carry
Put very simply, a binary option is an opportunity to invest in the price of an asset either going up or down. Called ‘puts’ and ‘calls’, there are just two options when it comes to binary trading, hence its name. Confused? Let us explain things for you…
If an investor has become convinced that the shares in a particular company are due to rise in value, they would place a ‘call’ on such an eventuality; if they believe shares will soon decrease they would place a ‘put’. Whether or not the trader makes money back on that investment depends upon just one thing: if their guess was right or not. It sounds simple, but as with all investments there are risks involved, and strategies – which we will cover later – that come in to play.
Binary options differ from traditional options in their simplicity, and allow investors to place their money on trading price fluctuations in global markets. While there are just two outcomes in this style of investment, there are different types of binary option that can be explored:
Up/down or high/low: The most commonly seen binary option, which is otherwise referred to as a fixed-rate option, the up/down option has a fixed expiry time and date, and price. Centering on something called a ‘strike price’, which reflects the company’s current asset value, the up/down option allows traders to wager whether the market value of those shares is likely to rise or fall. At the time of expiry, the trader will either win if their guess was correct, or lose if the assets’ value fell the wrong side of the strike price. This is regardless of how much the value moves; it must only move in the ‘right’ direction.
Touch/no touch: In order for a trader to reap the rewards of a touch binary option, the value of the assets in question must only be reached once within the selected date range. As long as the assets were valued at a particular amount during a specified time, the trader will be able to cash in their investment, and there is no need for the shares to still be standing at that price come closing time.
Range or boundary: The range or boundary option refers to a binary option during which a particular price range needs to be matched. Rather than matching a specific price, traders must simply predict a set of boundaries between which the company’s assets will fall. This is a wider goalpost for traders to identify, although the payouts may not be as large as they would be for other binary options.
As you can see, there is a key theme between all of these options. Regardless of how an investment is made, it hinges on just one question: will a target amount be reached?
Understanding strategies: Making the most of binary options
Aswith all forms of market trading, it is vital to conduct your research properly, prior to making any decisions. A high-risk financial investment, binary options have many advantages and disadvantages, and it is important that traders understand the risks that are involved before parting with any of their own money. You see, while binary options offer a relatively simple way to invest, it isn’t as easy to earn rewards. As with many trading options, that will come with practice and with knowledge. Whether you’re used to trading in traditional options or not, you must appreciate that binary options have different payouts, risks and fees associated with them, as well as an entirely different investment process. If you’re serious about binary options, now is the time to begin reviewing strategies and contacting the companies and websites that may be able to assist you in better understanding the market. Reading literature and blogs pertaining to binary trading is a great way to start, but familiarize yourself with several strategies before you start trading. It is also a good idea to begin your trading career with a dummy account – that is, one that doesn’t use real money. Getting to grips with binary options and some of the strategies that can be brought into play is best done without any real risk involved.
While binary options may seem like a sure thing once you know the system, or an enticing opportunity to make a little money, it is essential that you understand how such a system works before you dive right in. Hopefully, this post has inspired you to look into binary options a little more closely, and to approach new investments
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