Binary options trading became available to amateur traders only several years ago.
In this article, we explain the basics of these financial instruments.
What are binary options
Binary options are financial contracts purchased for only limited time. It basically means that these options derive their value from prices of underlying securities, and that they expire.
Binary option bets can be made on variety of markets including stocks, stock indices, foreign exchange, and commodities. From a single account, traders can make wagers on prices of such assets as stocks of single companies, stock market indices, major and minor currencies, precious metals, energy, and agricultural commodities.
With binary options, traders make directional bets- either on the price of an underlying asset (i.e. gold) going up (by buying a Call) or down (with a Put). Binary options contract lifetimes differ based on the option. For example, there are ultra-short periods, such as 60 seconds or 5 minutes, as well as longer time frames.
Types of binary options
With the most common binary options, the contract has to expire at a price favourable to a trader in order to pay off. For example, a trader can purchase a 5-minute Call option betting that a price of an asset will go up and close above certain price. If it does so, a trader gets back the amount bet plus a payout. The payout percentage is actually known at the time the contract is bought.
If, on the other hand, the trade is lost, the trader will only lose the amount of the wager, and nothing more. This is actually a good way to limit risk.
There are other kinds of binary options as well. One Touch options are actually more flexible. These contracts don’t need to expire at favourable prices, but rather need to touch certain price levels during their lifetimes in order to become winning trades.
Meanwhile, with Ladder options, the payout will differ depending on how high (for a Call) or how low (for a Put) the price of an underlying asset goes.
Basically, to place binary option trades, it is necessary to select an asset to bet on, a binary option type, direction (up or down), time to expiration, and the amount of a bet. Although it may seem a bit complicated at the beginning, with little practice, it becomes quite simple.
While the mechanics of entering a binary options trade online are easy to learn, making proper trading decisions is much more difficult. That’s why you need help in the form of charts, technical analysis tools, research reports, and even robots (smart algorithms) to suggest trades.
Help with trading binary options
Quality online binary options bots, such as Ultimate4Trading, not only provide access to multiple markets to their clients, but also help with trading. Ultimate4Trading, for example, has developed a sophisticated algorithm that sends binary options alerts.
To use these binary options alerts, a trader needs to select a signal and the amount to invest before making a trade. As the company claims, so far, 50,000 of its clients have increased their investment 10 times while using this tool.
Binary options trading offers many advantages including access to many markets, limited risk, quick payouts, and various research tools to take advantage of upcoming opportunities.
That’s not to say it is easy to do. However, quality brokers do provide their clients with great tools in order to help make this game profitable.