Binary Options 101

Binary options are a relatively new way to trade in the world’s financial markets. Born out of the financial crisis in 2008/9, binary options were regulated in the US in 2008 and they have fast become the most convenient, effective and user-friendly way to trade in the financial markets. Unlike stocks trading where you actually purchase and take possession of stocks, binary options do not require any such thing. You’re merely speculating on the future price movement of the underlying asset. Some analysts liken binary options trading to wagering on the outcome of a sports match. Of course the more information you have about the playing conditions, the team members, overhead conditions and your opponents – the more likely you are to make a correct prediction. There is no certainty with binary options predictions; however you can reduce the likelihood of making a poor decision by using strategy, insight and your trading prowess for maximum effect.

Understanding Binary Options Functionality

Consider the name binary options for a moment. Binary means 2, and with binary options you have 2 potential outcomes. Your trade can either end in the money in which case you make a profit, or your trade can end out of the money in which case you make a loss. There is no middle ground. These are oftentimes known as all or nothing trades, or exotic options. Do not be dissuaded by the all or nothing approach to trading binary options. They are easy to work with and you can increase your winning chances by selecting tradable assets which you understand and enjoy trading. All you have to do is to forecast whether the price of that asset will increase or decrease. Once you have made that prediction, and selected your preferred broker, you can easily verify the percentage return it will generate if your trade ends in the money. Likewise, you will know precisely how much you stand to lose if your trade ends out of the money. Typically binary options losing trades limit your losses to the amount of money you have invested in the trade itself. Sometimes however you will even receive a percentage of your losing trade back.

In practical terms, the process is a lot simpler than all the theory. You simply register at your preferred binary options broker, make a deposit and then select the underlying asset that you wish to trade. Remember this can be a stock, currency pair, index or commodity. You then decide if you wish to place a call option (the price will rise at expiry) or a put option (the price will fall at expiry). The amount you wish to trade will then be multiplied by the percentage return you will generate if you end in the money. One click is all it takes to execute that particular trade. You can watch all of the price movements in real time on the binary options trading platform, or wait for the trades to expire and enjoy the profits you have generated. Very rarely, if ever, in any other form of trading do you know precisely how much you’re going to generate at a specific point in time. This is why these are such attractive tradable assets to so many traders around the world. You can ascertain from the beginning how much you can generate or how much you stand to lose, and only you are in charge of every aspect of your trading activity.

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