When you decide to venture into online trading, it is a big decision that affects many other parts of your life. Even if you retain a full time job and are just trading on the side, you will put in hours that you were not counting on. The world of online investing is vast. Many different markets to trade in and many different strategies to employ. It can be a great learning experience. Binary options are just one of many ways to participate in financial markets.
The key is to learn as much as you can about the different ways to invest. That is how you get to know your comfort level with the fundamentals, how much risk you are willing to tolerate at any given time and how best to allocate your time and your resources. That is true of any type of trading. Within the realm of derivative trading that binary options exists, there is digital 100s, which are similar to binary options. You make a speculation on where the price of a currency, commodity or index will be in a short timeframe. And you don’t need to own the underlying asset.
Binary options are pretty basic. They represent a financial option where a payoff for a trader is either a fixed amount or zilch. They come in two flavors: the cash-or-nothing binary option or the asset-or-nothing binary option. At the core, they come from one simple question: Will an asset be above a certain price at a certain time?
Because you can just trade on that question alone, binary options are one of the simplest financial instruments out there. Still, the very simple can become very complex the more it is studied. Take a look at this example. Keep in mind, the price of a binary is always under $100.
It is 10 am on a Tuesday. If you see a binary option on the market concerning the price of a barrel of oil, you might want to jump on it. Maybe you think the price will be above $65.30 at 11 am. Say the bid price of the option is $35 and the offer price is $38. There is always a spread between the bid and offer prices. If you buy right then and then have a change of heart and sell right away, you will be paying $38 and selling at $35, losing 3 bucks. However, if you are right and the price of a barrel of crude oil is at $66.10 at 11 am, you get a $100 payout. That gives you a profit of $62 (100 minus the $38 price you paid for the option).
Binary options are technically classified at exotic options, because many investors consider them to be straight up gambling. The brokers tend to have an edge over the investors and many individual sites are not regulated by governmental bodies. On non-regulated sites, client money is generally not kept in a trust account and there are no third parties monitoring the action.
Binary options go by many different names, from all-or-nothing options to digital options to fixed return options. That can contribute to their reputation as being a little out in left field. But the process to work with binary options is simple and straightforward. They can be a gateway to trading in more complex financial markets, if you can use them to educate yourself about the market and how it all works.
For more information digital 100s and binary options and how to traded them, look to this resource for picking the right platform that will match your risk appetite and strategy.