What is Binary Option?
Before diving into binary options, a look at Forex trading and the stock exchange is a must. What differentiates these types of trading and binary options trading is the process through which traders have to undergo to start trading.
In forex and stock trading, you buy currencies or stocks if you think their value will rise. Currencies are traded in comparison to other currencies. Traders ultimately need to contact a broker who usually charges high commissions to get the work done. Discount brokers have recently been introduced who generally charge less but does not give any investment advice.
In other words, in this type of trading, traders have to manage on their own accounts or have a huge amount of money to be able to trade; it becomes very demanding and time consuming.
Binary options on the other hand, is a much more easy way of trading. Binary Options is about speculating whether the value of an asset will rise or fall at the expiry time; You cannot buy the trading assets on a binary options trading platform. You can trade all assets with binary options; be it currencies, commodities, indices or stocks whichever is available on the trading tools options.
History of Binary Options
Binary Options trading have been existing since years, but remained unnoticed until 2008. It gained popularity during that year where the Chicago Board of Exchange (BOE) publicly introduced it as the ﬁrst tradable asset besides the mainstream foreign exchange and the stock exchange.
However, the year 2008 was laden with bad news for the ﬁnancial. Binary Options became at that time the ‘saviour’ of trading. In course of such a difﬁcult phase for traders, this type of trading helped the average traders to amass revenue, at least on a smaller scale than nothing at all.
What also pushed binary options trading forward was the rise of technological advancement; in a world of rapidly changing trends, this type of trade instantly gained popularity due to the accessibility and the innovative features that it previewed. Binary Options can be traded anywhere, traders only need access to the internet and a device to connect to it.
With the fast moving pace of technology, binary options is today available on mobile applications. It provides more flexibility and internet connection.
Moreover, binary trading is a concept that keeps on evolving in terms of the trading tools that it offers. The ‘60secs’ trading for instance, is a fairly new concept that enables traders to make proﬁts in a time frame of 60 seconds. The trading tools partakes the needs of traders and it is one kind of a journey that requires no great experience about trading.
First of all, the aspiring trader must be over 18 years old. If not so, then you should not be trading on any platform. For instance, each platform requires a proof of identity to certify that the potential trader has the legal age.
Secondly, the trader should have a brief knowledge of ﬁnancial markets and happenings around the world. This is not a must, but this will help the trader to have better understanding of binary options trading, and will also help the latter to be more efﬁcient while trading the various options available on the platform.
Another important requirement before trading is that, a trader must be aware that trading binary options might result into loss of part or whole amount invested. Traders are therefore advised not to invest money to be used for important expenditures like; Health, Food, House payments etc…
Instead, they are advised to save money especially to trade options. Remember, proﬁt is the reward for risk taking and also bet what you can afford to lose.
Finally, traders should invest legal tenders from their own credit card and online wallets to fund their accounts. The latters would be requested their proof of identity, credit card picture, proof of address and other personal data which will help the platform to secure invested capital.
Advantages of Binary Options Trading
1. Experience requirement
Traders do not require any trading experience or background to trade with binary options. As explained earlier, binary options is not as complex as trading with foreign or stock exchange can be. It is one of the major strengths of the binary options trading platform; enabling more people to become traders and earn an additional income has never been so easy.
2. High return on investment
Unlike foreign and stock exchange, traders know beforehand, the pay-out that they will receive with the amount they invest. The minimum amount that can be traded on the classic binary options tool for instance is of $10. Traders can get acquainted to all the trading tools and trade on the one they prefer.
Proﬁts ultimately guide traders towards trading. The good news is that, as simple binary options trading is, the simpler the gain of proﬁts are. The ‘Speed Option’ tool for example, can yield a percentage of 70% within an expiry time of 30 seconds. The rapidity with which traders can make money with binary options is not available with any other trading compass.
Moreover, binary options trading requires no astronomical amounts for trading. For example, IQOption trading platform requires a minimum deposit of only $10. Once traders grasp the concept of binary options and understand the few technical terms, they are ready to trade.
3. Fast and easy approach
Most binary options broker platform does not require any downloads or third-party involvement and require only access to the Internet with a device. Another innovative feature of this type of trade is the mobile application that can be found on many platforms.
IQOption mobile trading enables traders to easily access their account anywhere and anytime they want, they can trade and receive all the ease of the web platform on their smartphone. These are small details that make a huge difference on the daily activity of a trader; providing more flexibility to earn a side income.
4. Assets and returns
Binary options trading is the sole ﬁnancial tool that enables traders to trade from a wide variety of assets. With forex and the stock exchange, traders are in a limited space because trading on both markets at the same time can prove to be difﬁcult.
With binary options on the other hand, traders have a comprehensive list of assets from which they can choose from. On the classic binary options for instance, traders can choose from currencies, commodities, stocks and indices on the same platform; it is important to note that there is a considerable amount of assets that can be accounted to almost 90 on one single platform.
Another beneﬁt with binary options is the return back on the invested amount, a percentage that can vary between 0-15 %. Unproﬁtable trades in Forex for example will result in the total loss of the invested amount.
There are undoubtedly strategies that enable traders to minimise losses, however return backs can always be uplifting especially for beginners.
Having discussed the advantages, understanding assets is another step to better trade with binary options. Assets as mentioned earlier are distributed into four categories mainly, currencies, stocks, commodities and indices. Assets are the ﬁnancial instruments of the market that carries signiﬁcant value with them.
With binary options, traders do not physically purchase the assets; they only have to determine whether the value of the asset will rise or fall. However, knowing an asset’s feature is still important because traders are investing their money and their should know where their money is going.
Currency pairs on any platform will be available in these patterns: EUR/USD, GBP/USD, USD/JPY etc… There are over 25 currency pairs that traders will ﬁnd on different platforms. The ﬁrst currency is known as the base currency and the second currency as the quote currency.
An index has been described as securities that represent a market or it can be a portion of it and each index has its own calculation value. One example can be the NASDAQ index which represents the American stock exchange. Therefore, it regroups all major companies under one single representation. If a company or multiple companies does badly during a period, it ultimately affects the performance of the index representation. It results in the asset’s value decreasing and vice versa.
Commodities, as you will see on binary options trading platforms, are inclusive of items such as Gold, Silver, Rice, Sugar, among others. They come with the same objective; speculating whether the value of the asset will rise or fall within the set expiry time. Trading on commodities can be highly volatile and therefore, requires a degree of experience. Beginners should allow themselves to ﬁnd their mark before trading on commodities.
In binary options, you will be acquainted with a variety of international stocks. Stocks are basically the shares that companies own and traders buy. However, in binary options, the concept remains the same as all assets, that is, you do not physically buy the stocks. You only have to predict whether the stock of a company will rise or fall.
How To Trade In Binary Options?
Trading with binary options is of course easy, yet you need to understand how the platform works in order to better grasp the techniques.
Understanding binary options ultimately means knowing the technical terms. No matter on what platform you will go, you will ﬁnd technical words such as “Call/Put”, “Expiry time” among others. These are two of the terminologies that you need to know when you are trading.
Call and Put
Call gives an indication that an asset’s price will rise above the set price. When you are placing a call action on the EUR/USD for example, you are actually assuming the value of the currency pair will move higher than the current price.
The Put function works the other way round; you place a put action when you think the value of the asset will go below the strike price.
With binary options, you can win the trade even when the value of the asset is moving down, provided that you hit the put option.
The expiry time refers to the end of the trading session; all binary options platform that you will encounter will consist of the “expiry” tab which will give an indication about when the transaction will close.
The expiry time differs with the different trading tools, for instance, trading with the ‘Long Term’ option will give you different expiry sessions; the transaction can expire within one day, one month and even one year. You have the ability to choose at what time you want to end the transaction.
The most rapid return on investment can be obtained with the ‘Speed Option’, which gives you the ability to choose an expiry time varying from 30 seconds to 300 seconds.
It refers to the price at which an asset might be purchased or sold at a speciﬁc time period. In binary options, strike prices can vary from Put to Call. For a Call option, the strike price signiﬁes the buying price of an asset at a speciﬁc time. Whereas for a Put option, the strike price is the price at which a speciﬁc asset might be sold.
This term refers to a winning position, an ‘in-the-money’ transaction means the transaction you have placed has been successful and you have owned a proﬁt.
An ‘out-the-money’ situation is the contrary of being ‘in-the-money’, which means that you are losing money.