I noticed not much is discussed about binary options here in the forum. If anybody is interested, binary options is a simplified way to participate in the financial. markets, but just because I said its simplified it doesn't mean its easy. To the people who are brave enough, here is a short rundown of what is it about and what platforms offer it. I have made some money out of this but I also have lost some. It would be also good to discuss strategies in approaching this kind of financial instrument.
What is a Binary Option?
In finance, a binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. Thus, the options are binary in nature because there are only two possible outcomes. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and Fixed Return Options (FROs) (on the American Stock Exchange). - Wikipedia
In Simpler Terms
A Binary Option is a Financial instrument in which you speculate on the price outcome of a certain Stock, Future, Commodity or Forex Pair. Whether it will be higher or lower than the current price on a future fixed date or time.
In layman's term, "betting" if a price of the binary option will go higher or lower.
Example
It is 3:15 pm and a stock is trading for $5. You expect the stock price to go down within the hour, so you invested $25 on a Binary Option called a PUT option with a 70% Return on Investment upon expiry at the end of the hour.
If the price of the stock was $4.95 upon option expiry, your put option was called in the money� meaning that your speculation was actually correct. Your $25 will become $42.50 because of the 70% Return of Investment.
If the stock was $5.50 upon option expiry, your put option was called "out of the money" meaning your speculation was incorrect. You will lose your $25 or depending upon you options broker, a percentage of that will be returned to you.
If the stock was still $5 upon expiry, your investment will be returned to you.
Types of Binary Option Transactions
There are types of Binary Option Transactions sample are as follow:
* CALL - use this if you expect the price to be higher than the current price upon option expiry
* PUT - use this if you expect the price to be lower than the current price upon option expiry
Simplicity and Low Capital Start-up
Just Like "Above and Below", Binary Options simplifies your participation in the Financial Markets. It can be a good way for a beginner speculator to trade the markets without making the significant investments needed to start trading. The initial capital needed to start trading is $5 for most Binary Option Brokers
Do you have other platforms other than the one I'm using?
Binary.com : : Online Trading platform for binary options on Forex, Indices, Commodities and Smart Indices
Please share your experience, tips and strategies.
A WORD OF CAUTION:
BINARY OPTIONS TRADING OR ANY TRADING OF THE FINANCIAL MARKETS MAY IT BE STOCKS, FOREX, FUTURES OR COMMODITIES IS BASICALLY STILL SPECULATIVE IN NATURE AND IS AN ACTIVITY THAT ENTAILS RISK. THERE IS A POSSIBILITY ESPECIALLY IF YOU ARE NOT CAREFUL, THAT YOU CAN LOSE ALL YOUR INVESTMENTS. ALWAYS REMEMBER TO INVEST MONEY THAT YOU CAN AFFORD TO LOSE. DO NOT INVEST MONEY THAT IF LOST, CAN DRASTICALLY ALTER YOUR LIFESTYLE.
Anyone Trading Binary Options?
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