In the world of investing, a potential investor has a wealth of resources, tools, and methods at his or her disposal. This was not always the case, but with the advent of the Internet and the advanced technologies and increasingly-sophisticated methods in use today, trading is more powerful than ever before.
One of the hottest trends in trading today is found with binary options – an exciting way to make money based on market movements. This form of options may seem exotic to some, and is not as commonplace as other methods of option trading, but it is quickly catching on, especially with online trading platforms.
This article will give a brief introduction to binary options and how they are used today.
What Are Binary Options?
Before we talk about binary options, we first will cover an option – of which binary options are one type.
An option is basically a contract between two parties to buy or sell an asset at a certain price during a certain period of time. When it comes to currencies, an option is a contract to buy a particular currency at a particular price by a particular time, say, EUR at 1.5 USD before the option expires on April 1st.
A binary option has two possible outcomes: a fixed payout amount or nothing. Other names for these include all-or-nothing options and digital options, particularly in the forex option community.
How Binary Options Work
Fundamentally, binary options operate very similarly to regular options. When you invest in a binary option, you are basically taking a position for or against a particular outcome. If you meet that outcome, then you receive a fixed payment; if you do not meet the outcome, you lose the amount invested in the option.
For example, let’s say there is a binary option that pays out 81% and states that EUR/USD will close above 1.5000 by April 1st. If you take the call position, you believe that this outcome will occur; if you take the put position, you are betting that it will not occur, in other words, EUR/USD will close below 1.5000 by April 1st.
Most binary contracts pay out around 75% – 85% of the trader’s investment amount; so, if you were to invest $100 in the EUR/USD binary option mentioned above which pays out 81%, you could receive a potential gross profit of $81.
As you can see, binary options are extremely attractive methods for those who want to earn a lot of money without a lot of risk.
Binary options have a lot of potential for traders who want to earn a profit without navigating the often-risky up and down world of forex and stock trading. Learning more about binary options could open up the doors to potential profits for a savvy investor, making them worth a shot.