Binary Option – Understanding The Concept Before You Trade
Binary option is a type of option trading in which you either get handsome returns or you get nothing at all. For instance, let us say you have bought shares for USD$50 each and the payoff you can expect is USD$500. When the trading begins, if the price at which the stock is trading is above USD$50, you are entitled to get USD$500 but if the price at which the stock is trading is below USD$50, you get nothing at all. So, this is a type of financial instrument wherein you get everything or you lose everything (the amount you have put in the trade).
Another important concept in this trading is the expiration date. You are entitled to get the cash or the payoff only after the expiration date has been reached. And for this reason, binary option trading is oftentimes referred to as “all-or-nothing options”. However, one remarkable advantage is that you are well aware of the amount that you will get as payoff once the expiration date has been reached. This is usually a predetermined amount of money.
As far as the “all-or-nothing” concept is concerned, there are times when traders do get back something. This largely depends on the platform on which you are trading. Even after the expiration date if you find that you have not won anything, you still stand a chance to win at least “something”, a certain so called payout amount.
What you need to know about binary option?
There is a difference between the traditional options and the binary options. In case of the former, you are not required to know the direction of progress of the price of the underlying assets. But in case of binary option, you will have to be able to assess or ascertain the direction of price movement of the assets to which it is tied. So, you will have to be intuitive in binary option trading.
Probability is one of the factors that can guide the movement of price of the underlying assets. Depending on the probability of an event taking place, the price of the binary option trade is determined. For instance, if the value of a contract is USD$100 and the contract last traded at USD$90, it only indicates 90% traders engaged in trading in the binary options market believe that the event will take place due to which the price of the asset can be determined.
You will find out that the most experienced of binary option traders have had to undergo a rough phase till the time they did not grasp the concept.
Guest Post: This article was published as part of the Guest Post Series. Guest posts come from leading experts in business, finance, and Investing. The series tries to bring a diverse range of perspectives on the critical issues of our time. The views expressed in this article are solely that of the author and do not necessarily represent the views or opinions of Finance4.Net.