The term Binary Option is a fairly new trading concept in the United States. Binary options have enjoyed popularity in Europe and around the world for quite some time now. The Securities and Exchange Commission (SEC) only just agreed to list binary options in the United States in 2008.
Introduction to Binary Options
The term Binary Option should not scare anyone, as this type of financial investment is quite simple. Before venturing into Binary Options, investors must know at all times that there are only two possible outcomes when trading Binary options. This is how it derived its name ‘binary’. You stand a chance of making a predetermined amount of money, or you’ll make nothing at all.
Investing a predefined amount of money in options at fist instance, does not mean that you are buying over the underlying asset (Stock, Commodity, Forex or Index). When you place the predefined amount, you’ll have to make up your mind whether you wish to have a ‘call’ option, or a ‘put’ option. A ‘call’ option will expire ‘in the money’ if we have the underlying asset expire above the target price. What we mean is that, the underlying asset is going to surge upward between when we invested and the expiration time. The timeline can be an hour, one day, or a week ahead.
On the contrary, a ‘put’ option will expire ‘in the money’ if we have the underlying asset expire below the target price. The phrase expires ‘in the money’ connotes being paid. The payoff value falls within the range of 65%-81% return. The percentage return is also known before the investment is initiated. In so many cases, an investor would get nothing when the underlying asset expires ‘out of the money’.
Choosing the Expiration Time
Investors trade Binary Options by the hour, meaning they expire hourly, at the same time; we get longer expiration time such as daily, weekly or even monthly. How you approach the market analysis and trading strategy would affect the appropriate expiration time for the trade. Trading short term implies you’re comfortable (and sure) of the 5/15-minutes charts and thus would trade the market hourly.
You could trade binary options that expire daily, and this means that you are sure of long term analysis. Knowing your analysis properly and a ready idea of the market direction (up or down) within the time of expiration, then you can open position with a ‘Put’ (if you envisage a downward movement) or a Call (if you envisage an upward movement). For Daily Binary options setup
Choosing a Binary Options Broker
You’ll definitely need a broker in order to start trading binary option and at the same time you should get a broker that offers these types of instruments.
Brokers like tdameritrade and their likes that we are used to hearing do not carry out binary options. Specialized brokers carry out binary options and they offer these instruments and depending on the broker you could get more assets to trade options on and more expiration terms.
My experiences with binary option brokers have proven that they are basically the same as regards the mechanics of the trading. They are dissimilar if the number of assets available and the expiration time vary across boards. Read more on Binary Options brokers.
The future of binary options is unknown. However, if the current trend continues, then binary option would continue to attract tons of investors from the traditional currency trading. With the continued improvements in the development of the internet and the financial market, we would witness remarkable developments in forex binary option trading and binary option trading in general.
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