Whether you’re an experienced finance professional, or just someone looking to understand a bit more about good ways to make money, you might have heard of Binary Options Trading. Binary Options are one of the best examples in trading where a calculated strategy can yield a profit, but before you dive in head first you need to know a little bit about it.
What is Binary Options?
A Binary option is a type of option with only two possible outcomes – either a fixed monetary amount or nothing at all. With Binary Option you can make great returns on currencies, commodities and stocks without ever actually purchasing one. This simplicity on the face of it is why they are so popular – either you predict that the price of an asset will rise (known in BTOs as the “Call” option), or you predict that the price of an asset will fall (known as the “Put” option). Let’s take an example…
A trader who thinks that the USD/GBP price will be above 0.6500 at 15:00 can purchase a Call Option, whilst a trader who thinks the price will be below 0.65 can sell a Call Option contract, or buy a put option. At 14:00, the USD/GBP price is 0.6490, and believing that this price will increase to above 0.6500 buys 10 call options, at a cost of $50 each.
There are two outcomes here. Either at 15:00 the price USD/GBP price is less than 0.6500, in which case the trader loses what they invested (in this case, $500), or the price is above 0.6500, in which case the trader makes a net profit of $500 (gross payoff of $1000 minus the $500 investment).
How to make money : You wouldn’t buy a car knowing nothing about the brand, so why would you make an investment knowing nothing about what you’re investing in? The best investments are in markets you are familiar with – if you know the gold market well enough to predict how it will rise and fall, then that would be a good place to get started with Binary Options Trading. In the same way even once you’ve decided what car you want, you’d shop around for the best deal, there are a range of brokers that you should check before making your Binary Options Trade. Then you need to choose an expiry time, which can be as short as 60 seconds or as long as a month.
There are a number of strategies common among binary option traders to reduce the risk to their investment. Hedging allows traders to mitigate some of their potential losses by covering both sides of the trade, often opening accounts at different brokers to make use of sign up bonuses. A number of brokers offer an early exit option, where you pay a fee to end your trades before they are due to expire, locking in a trading profit.
Binary Options Trading can be one of the most rewarding forms of trading out there, where a calculated strategy can earn a profit of up to 81%, but due to the ‘all or nothing’ nature of Binary Options you need a good understanding of your chosen market before getting involved.