Binary options trading is growing more popular as more people come to understand what it is and how it simplifies options trading as a whole. It is often considered the most accessible form of option trading. Binary options trading was largely underutilized prior to 2008, when more websites began offering simplified binary options trading interfaces. Until that time, it was largely perceived as an exotic, situational measure. Thanks to these websites, however, it has come into vogue as an option for individuals that would otherwise never consider trading of any form, and more literature is becoming available for them day by day.
What is binary options trading?
Binary options trading is a version of option trading. Specifically, binary options trading creates a situation in which there will be a predetermined payoff for a particular market condition, or not. For instance, one of these common variations is “cash or nothing”. With a “cash or nothing” option, the option is purchased, and if it expires while still in the money, the owner receives the appropriate payout. With an “asset or nothing” option, the owner receives a security instead of a traditional payout. In any case, binary options trading always reduces the outcome to one of two states: it is ‘binary’.
Binary options have garnered popularity because they are somewhat easier to grasp and understand. There are only ever two possible outcomes. This means the risk is much easier to assess. It isn’t a matter of how much can be gained or lost, but what will be gained or lost related to a particular pre-defined condition.
How do I trade binary options?
Trading binary options is a matter of speculating whether a market will be higher or lower at the end of an expiry period. The basics are as follows.
One type of option is a “call” option. A call option allows one to buy something at a particular price. A “put” option allows one to sell something at a particular price. The price is pre-determined and fixed. Thus, if one owns a call option to buy something at a certain price, and the price for that item goes up, the owner of the call option can immediately profit. The reverse is true for put options. If one has a put option on something they own, and the price drops, they can still sell it at the initial price.
In the context of binary trading, the only difference is which way one looks for the market to go. If you are binary trading with a “put” option, you are hoping for the market to go up. If you are trading with a “call” option, you are hoping for the market to go down. This must occur sometime before the expiry date. The entirety of the purchase revolves around this.
Most primary brokers will provide advice about this process, as well. While it is possible for one to do their own signal research and “wing it” with purely self-driven education, a reliable broker will advise their client about how to learn the basics of binary options trading. Always look for a broker willing to educate.
How do I find a trustworthy broker?
Trustworthy brokers can be researched online. The most important elements to look for in a broker are their history and reputation. Untested brokers may or may not be reliable. Brokers that deserve bad reputations almost always earn them. Regulated brokers are those that adhere to certain industry standards, and you will want to pursue their services preferentially.
Binary options trading is by no means easy or risk-free. However, because the overall process is far less complex, it provides a lower barrier to entry while still having sufficient depth to reward a skilled trader. This makes it an ideal investment platform for individuals outside the financial industry.