Binary options aren’t as simple as they may sound. While you can earn a lot, the risk is relatively high, so proper research is necessary before becoming part of the binary options trade.
Just keep reading to understand what is at stake and learn how to trade binary options. We’ll cover all you need to know and inform you on how to find an excellent online trading broker.
What Exactly is a Binary Option?
A binary option is a type of financial trading option whereby only two possible outcomes of the trading are possible: a clearly stated profit or a complete loss of the money traded on the asset in question. Hence, binary options are, essentially, a “yes or no,” “all or nothing” alternative. From here, most binary options trades are either cash-or-nothing or asset-or-nothing, with the final payout in cash or the monetary equivalent of the asset.
The two possible outcomes of the bet depend on whether the option expires ITM (in the money) or OTM (out of the money), and, most commonly, traders bet on whether the underlying value of a given asset will be above or below a given price point on a predetermined date. The trader earns money if the bet aligns with the asset’s value on that date, and if not, they lose the money they’ve invested.
How to Start Binary Options Trading?
It sounds simple, but things are slightly more complicated. Firstly, to establish a binary options trade, there has to be a fixed expiry date and a stake price, and the terms for trade and investment have to be stated clearly.
Thus, for example, a trader believes that on July 10, 2022, the share price of Rb10 will have fallen below £10. The bet is configured as a “yes” (it will be lower than £10) and a “no” (it will be higher than £10) option, with £10 being the stake price.
The trader then stakes £400 on this trade and agrees to a payout of 60%. If the final share price of Rb10 on July 10, 2022, is below £10, the trader earns £240. If not, they lose £400.
That said, one final thing to note is that you’ll have to find a suitable underlying market for trading that offers binary options.
How Do Binary Options Compare to Vanilla Trading?
Both American and European vanilla options are, in many ways, similar to binary options, but there are some key differences. You can set the expiration date of the trading and the fixed investment, but the amount of profit you get depends on the particular status of the asset in question – either before or on the expiration date (for American vanilla options) or only on the expiration date (for European vanilla options). You can also take possession of the asset.
Binary options are more limited. The amount of profit is fixed, so the changes in status and value of the asset don’t impact your potential gain in any way. Similarly, you cannot assume possession of the asset.
It’s easy to see why binary options are convenient for many traders, but some of the downsides of this type of betting become immediately clear as well.
- Clearly defined stakes
- Preestablished gains
- Preestablished losses
- Overall high average profit
- Capped gains
- Not available on every trading market
Binary options work well when the probability of certain assets behaving in certain ways on a specific date is very high. However, volatile situations can be pretty risky and lead to losses.
How to Find the Best Online Binary Trading Broker?
If you want to start trading binary options, your best bet would be to look for a quality online broker. At Trusted Options, we ensure the safety of your funds, provide a user-friendly interface, and create a welcoming trading atmosphere.
Deposits and withdrawals are straightforward and easy, allowing you to start trading quickly and reap the benefit of your successful trades. If you’re willing to start binary options trading with the best and most trusted trading broker, just head to our page, contact us, and earn some smart money!