Binary Options Trading
Binary options are a simple financial product which allow investors to basically choose whether an asset will go up or down over a prescribed period. Returns are fixed and so is the risk, so this takes a lot of the ambiguity out of trading decisions. Also, once you buy an option you either receive a fixed payout or lose your investment when the option expires. This takes the guess work out of choosing when to exit a losing or profitable trade.
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There are risks though, and some things you need to aware of before trading binary options. The simplicity of these products is alluring, but that can actually entice traders to begin trading binary options when they are not ready or educated enough to begin.
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Binary Options Basics For Beginners
There are multiple forms of binary options, each with their own advantages and disadvantages. The most common form of binary option is the “vanilla” or basic binary option. Typically the current price of the asset will be shown on your trade screen and you will be asked if you think the asset will be higher or lower at a future time.
If you believe the price will be higher, you buy a “call” option, usually reflected by an up arrow. If you believe the price will be lower, you buy a “put” option, usually reflected by a down arrow. The “future time” is called the Expiry. In order to “win” the trade, the price must be where you predicted at the time of expiry. Typically once you place a trade you can’t exit until the expiry. If you are right in your prediction you receive a fixed payout, if you are wrong you lose the money you placed on the trade.
Figure 1 shows a typical binary option trade screen.