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What Are Binary Options? A Complete Introduction For The Beginners

What Are Binary Options?

Binary options are options in which an investor gets a fixed monetary amount or nothing at all. In these options, there are only two possible results for the investor; return of his investment with profit, or a complete loss of the investment. It is an estimate that a trader makes of underlying assets in a certain amount of time in order to earn money.

There are various brokers on the internet as well as in markets who manage the strike price, payout and expiry of the wager done by the investor. The broker is usually the one who decides the amount of money to be invested by the trader. Also, the profit can vary from broker to broker. However, profits, strike price, and investments are settled beforehand and their complete information is delivered to the trader.

Why The Word ‘Binary’?

The reason it is called by ‘binary’ option is pretty literal. It is because it means ‘consisting of two parts’. As the trader has to choose from two options; either to go for ‘call’ or for ‘put’, hence the term ‘binary option’ is used.

The concept of ‘call’ and ‘put’

In other words, binary options are also called as ‘all-or-nothing’ options. In even simpler words, these websites or market brokers provide you an option of wagering on anything that is being traded. The investor will then predict if the stock he has wagered on will either go up or down in price in a certain amount of time. For instance, if the investor foretells the stock to have an increment in half an hour; and if it does, he will get the amount he invested plus a certain percentage of that amount as his profit. If it does not go as predicted, the investor would lose his investment and would get nothing but an utter loss of his money.

If a trader predicts a particular share will go through an increment in price, he would opt for a ‘call’. However, if the trader believes the share will face a downfall in the market, he would opt for a ‘put’. If the trader goes for put, the market value of his selected share must go below than the strike price before a certain time for him to make a profit. If he thinks the market value will rise, he must go for a call. The amount of the profit depends on how much the broker has dealt with the trader. Mostly, the brokers offer more or less 75 percent of the total investment if the prediction turns out to be right. For instance, if the trader has invested 100 bucks and wins at his trade, he will get his investment with an additional 75 bucks, which is 75 percent of the investment he made.

In a recent couple of years, binary options have been kind of a hit on the internet. There are various websites that are offering binary options to the internet users in the face of ‘easy money while sitting at home’. Binary options can be termed as a type of ‘gambling’, as they are a big risk and can cause you to lose your investment in no time.

There are various assets that the trader can have his money invested in as binary options, namely; indices, commodities, stock and Forex. The traders can predict the right direction of market value by past economic fluctuations, for instance, having a look at the past prices of the commodities being traded as binary options.

Pros And Cons To Binary Options Trading

However, taking an analytical perspective on the topic, there are some advantages and disadvantages of binary options. The foremost advantage is it is very easily understood as it has only two outcomes; profit or loss. Secondly, the decisiveness becomes easy for a person as there are only two options to choose from. The strike prices are also very flexible as they are selected by the broker.

One of the biggest disadvantages of binary options is that you need to have luck on your side most of the time you wager to have maximum profits. Which means the trader is prone to having a loss much more than gaining profit. Also on losing, the trader will lose more than he can gain on winning.

However, it is not as easy as it sounds, as no trader would just invest the money in something that could result in a complete loss of the trade. Various websites and even dealers have carved out a number of strategies that must first be learned by the trader in order to gain maximum profit out of binary trading. As tricky business as it is, a trader should learn the tips and tricks and gain complete information about it at first to succeed at it, as if the result does not come out as planned, a lot of money can be lost.

Binary Options Software

You can also research various types of binary options software, and can greatly increase your profits by doing so. The best site with all the information under one roof is – check it out before you get started to get all the latest news and advice.