Binary option is a simple trade instrument to trade price fluctuations in multiple global markets, but a trader needs to understand the risks and rewards of this trading instrument. Binary options are different from traditional options. If traded, one will find that these options have different pay-outs, fees and risks, not to mention an entirely different liquidity structure and investment process.
What Are Binary Options?
Binary options are classed as good options, and are extremely simple to use. The most common binary option is a “high-low” option. Providing access to stocks, indices, commodities and foreign exchange, a high-low binary option is also called a fixed-return option. This is because the option has an expiry date/time and, something called a strike price. A trader who wages incorrectly on the market’s direction loses her/his investment.
If a trader believes the market is rising, she/he would purchase a call. If the trader believes the market is falling, she/he would buy a put. For a call to make money, the price must be above the strike price at the expiry time. For a put to make money, the price must be below the strike price at the expiry time.
High-Low Binary Option
For the common high-low binary option, the trader buys a binary call option if he thinks the price of the underlying asset will go up above the current market price or if he thinks the underlying asset price will go down, then he will buy a binary put option. If his assessment is correct, he will receive a pay-out. Otherwise, he loses the initial investment.
As binary options have fixed returns, it doesn’t matter how high or how low the price of the underlying has moved past the strike price. The pay-out is also fixed and known prior to entering the trade. Also, an important fact to note is that the pay-out for a successful binary trade is usually only about 70% to 80% of the investment put into the trade.
Binary options also typically have very short expiry times ranging from as fast as 60 seconds to just a few weeks.
Other Types of Binary Options
Other types of binaries include “one touch” binary options, where the price only needs to touch a specified target level once before expiry for the trader to make money. There is a target above and below the current price, so traders can pick which target they believe will be hit before expiry.
A “range” binary option allows traders to select a price range the asset will trade within until expiry. If the price stays within the range selected, a pay-out is received. If the price moves out of the specified range, then the investment is lost.
As competition in the binary options space ramps up, brokers are offering more and more binary option products. While the structure of the product may change, risk and reward is always known.
How to make money with binary trading?
One can make money in binary options. The easiest way is to use a binary options robot, such as OptionRobot that will automatically analyse the markets and make accurate predictions for you. This is fully automatic and comes with a success rate of around 80%.
At this moment, the most reputable binary broker where one can make money by using proper strategy is HighLow. HighLow has a pay-out rate of 88% and is the most commonly used strategy with licensed and government approved traders. Thus, HighLow is a safe and fair investment strategy.