What Are Binary Options?
A binary option, also known as “all-or-nothing option” or ”fixed option”, is a type of investment that guarantees a fixed return for correctly predicting how the price of a certain stock, currency, index or commodity will move over a predetermined period of time. The fixed return can be anything up to 85% while the fixed period of time can be anywhere between 60 seconds to years. (NB : Varying time durations vary from broker to broker).
They are called binary options because there can only ever be two
outcomes; your prediction is either correct or incorrect. The risk, the
reward and the length of time before an option expires are clearly
before the investment is made thus making money management easier and making it impossible to lose more than you decided to risk.
Why Trade Binary Options?
There used to be a time when investing in the financial markets was an opportunity available only to professional investors and financial institutions. Now, with the advent of Binary Options and the development of intuitive, advanced trading platforms anyone with little or no financial knowledge or trading experience can profit from a wide range of Stocks, Currencies, Indices and Commodities.
Binary Options trading is said to be;
• Fast-Paced – Expiry times for an option can be as short as 60 seconds. With the possibility to close a position early to secure the profit or limit the loss, it is possible to make hundreds of trades throughout a trading day.
• Simple – Just simple yes/no investment decisions are all is needed to make investments on easy-to-use platforms, making binary options accessible to everyone.
• Profitable? – Trading Binary Options can present opportunities for quick returns of up to 85% in minutes.
• With Limited Risk – Unlike what happens in traditional Forex, there is no leverage involved with Binary Options and you are not at the mercy of wild fluctuations in price. This means you can only lose the amount you invested and no more. Additionally, some Option Brokers like ZoneOptions includes a 'Close Early' feature enables you to close a position prior to expiry and limit a loss, as well as securing a profit.
• Affordable – When trading binary options you are not purchasing the asset itself; this makes trading in expensive assets like Gold – approx $1670 an oz or Apple Inc Stock at over $550 a share, affordable. Remember, you are not buying the underlying asset itself, just investing in the prediction about its price movement.
The above information has been reprinted from ZoneOptions user guide.
Find out step by step how to place a trade with binary options here.
A trading example of how to trade a binary option is here.
For more information about difference between a stock option and a binary option, go here.