While everyone has heard of stock trading and stock options, binary options are a completely different story. Binary options are based on the proposition of whether an underlying asset will reach a particular price at a certain time. Traders then place trades on whether they believe the asset will or will not trade at a certain price. As one of the most simple financial assets to trade, binary options have a mass appeal to newcomers and savvy market traders. Even though binary options are relatively simple, it’s still vital for the trader to have a full understanding of how they work. Continue reading to learn more binary options trading.
What Is the Definition of Binary Options Trading?
The underlying word “binary” means having two parts. With binary options trading , there are only two possibilities for you to choose from, and you must choose one or the other. One of the options is for the underlying value of the asset to fall, which is called the “Put” option. The other option is for the underlying value of the asset to rise, which is called a “Call” option.
The first step in the process of investing in binary options is to choose the type of investment. For example, if you are a farmer and have an interest in wheat prices, you can choose to place a binary option in wheat. In any case, the more experience and understanding you have with the wheat market the superior insight you may have on effectively predicting changes in price.
Trading with Binary Options
Binary options are estimations of the performance of the underlying assets for a specific time frame. With the majority of investments, investors are required to purchase the actual asset they are interested in, and the loss or profit is determined by the asset changing value. For instance, if you purchase a stock at $1.00 and sell it back at $2.00, then you make a profit of $1.00 per share. On the other hand, if the stock decreases in value, then you lose money. With this typical type of investment, you must constantly worry about when you should sell to get out of the market. However, when it comes to binary option trading, it’s significantly simpler. With binary options, you trade futures on the market and not actually in the market. As a result, you enjoy less physiological stress because you are predicting the movement of the underlying asset for the specified period of time.
Different Types of Binary Options
One of huge attractions of binary options are the wide array of contracts available. For instance, you can trade with:
- Commodities such as corn, silver, gold, oil, and many more
- Indices such as the Dow Jones, Nasdaq, Nikkei, FTSE, and several others
- Stocks issued from some of the top and most lucrative companies in the world.
- Forex trading options from all of the world’s largest currencies such as GBP, USD, EUR, AUD, JPY, and many more.
Benefits of Investing in Binary Options
Binary options are exciting and offer investors several benefits. Some of the most common benefits are listed below.
Higher Return and Known Risk
Because of the risky nature of binary options, the return on investments are typically higher. At the same time, you will know how much you can possibly profit as well as your risk from the beginning. With binary options, only the amount of money you can lose is the amount you choose to risk on the trade.
Simple to Trade
Since binary options only have two possible outcomes, it’s significantly easier for investors to make wise predictions. Without the need to worry about the magnitude of price movement, stop losses, or other common stock considerations, binary options keep it simple. In addition, the majority of the binary options trading platforms cater to novice investors with user-friendly sites, informative videos, demo accounts, and live chats designed to answer questions.
Quick Profits and Fast Turnovers
While the turnover rate can vary across assets, most binary options have a fast turnover and quick payout. Binary options will typically have expiration times in an hour or less, which means you are able to trade many more options in a day and more opportunity for profit. For instance, a large majority of option traders trade 30 or even 15 minute options. If you really want to gamble, you can enter the exciting market for 60 second options.
Wide Array of Assets to Diversify Risk
With binary options, there is a vast abundance of assets you can trade. This huge selection allows investors to have an extreme amount of control over their risk and enables them to diversify risk. At the same time, binary options enable investors to gain access to stock that would be too costly for the average individual. With binary options, you are investing in a prediction, instead of the actual stock. Because of this, you have the ability to purchase options at a significantly cheaper rate.
Since 2012, UltraTrade broker has been the premier trading platform for a wide variety of assets, especially binary options. Contact UltraTrade today to learn more.