Understanding Binary Options

Actually, the concept of binary options trading is easy. Your broker offers you a number of assets, and you pick the certain asset you wish to purchase. After that you buy a contract, which can last as little as minutes up to an entire day. You will then predict whether the movement of the market will make your assets increase in value or not. Should your prediction prove right, you will receive the amount your contract indicates. On the flip side now, if your move is the wrong one, you will lose anywhere from 85 to 100 percent of your investment.

As the binary name implies, you can only select from two predictions. You are either “in the money” or “out of the money.” You are in the money when your asset is at a higher value when your contract expires. On the other hand, you are out of luck if the value has fallen at expiration.

In binary options trading, there are basically two types. There is a cash-or-nothing option, which gives you a fixed price should your asset reach the strike price, sometimes as high as 185 percent. Now with the asset-or-nothing method, you are paid the total value of your asset if your prediction is correct.

As mentioned above, binary options trading is not without risk.

That is why it is widely called the “all or nothing option.” Obviously, the main risk is that you lose your entire investment if you’re wrong. There are some contracts that will allow you to receive a very small percentage of your investment back, but still. Your best bet is to make sure you are educated in predicting short term fluctuation in the market before engaging in binary options trading.

That said, there is another way to try binary options trading. That is by reselling your assets to another trader. There are some traders who will indeed pay a higher price for your assets before your contract terminates. Doing so at least guarantees some return on your investment. It also eliminates the chance of losing your investment if the contract ends out of the money.
By now, you must be asking where you can find good options brokers.

A quick internet search will give you a slew of brokers offering binary options trading. Do your due diligence though. Go through reviews and likewise ask family and friends if they know of any good online brokers.

Go through their policies with a fine-tooth comb before signing on the dotted line. Pay extremely close attention to their terms and conditions. Know what the exact fees are on payouts. Be aware too that some brokers will not pay you in cash. Instead, they will offer you a discount when you buy your next asset. Be certain that every detail is clarified with the broker you choose.

Look into the solutions each of them offer as well. Lots of brokerages also offer an array of trading tools right on their websites. This could serve quite handy if you choose to engage in more trades. Lastly, make sure that the movement chart of your asset price that is on your broker’s site is equal to that of real-time stock charts. For the most part, reputable brokers will give accurate info, but hey, it’s your money on the line so double-check.

Digital Options - Fixed Return Options
Binary options – often called digital options or fixed return options – have gotten ever more popular over the last few years and therefore are in considerable demand particularly in times during the markets uncertainty. The rewards are clear – return is known in advance, wide variety of expiry points

Binary Options Trading
Binary Options Trading takes place when a purchaser enters into a contract to purchase an actual asset at a fixed cost at a pre-specified time later on. The customer would not choose the asset itself, as an alternative the option to buy it. The fixed price at which the owner buys or sells at, is known as the strike price.
Binary option trading is incredibly flexible, as a result of different expiry times, the number of underlying assets being offered as well as the ability to trade on the web without making use of a broker

Call Option / Put Option
The route the asset will go can either possibly be up (known as a call option) or down (known as a put option). A client purchases a call option, in cases where he thinks that will from the expiry period, the asset shall be over the strike rate. He places a put option in case he thinks that through the expiry time, the asset’s price will be below its strike price.

One Touch Options Trading
The best thing about trading one touch options is they don’t need to be cashed in at the expiry time, but alternatively at any point in time throughout their life. They could also be used as hedging method just for stock option approaches or currency trading spot positions.

Stock Options
Therefore, a stock option takes place when an owner either purchases call option or sells put option the stock of a particular organization. A stock option is a kind of binary option. Stock options certainly are a particular type of option, since there are different types available, stocks being just one of them.

Forex Binary Options Trading
Forex binary options trading is taking the digital options market with an easy “up and down” fixed return options process that even the most not experienced binary options trader may understand.
Binary options trading, through an on-line binary options platform, offers traders a chance to call and put positions on major currency pairs such as the US Dollar against the EURO as well as the US Dollar against the Pound, among numerous others. Along with binary options, or fixed return options, you are forecasting no matter if one currency can trend up or down against some other currency.

As the week draws to an end and the markets close, binary options trading gets put on hold until Monday morning. For those of you who have more time on the weekends to spend on binary options trading and prefer to catch up on the news of the past week on Saturday and Sunday, you might want to check out one touch options and how they can diversify your investment portfolio.

What are one touch options?

One touch options offer an investor a payout once the price of an underlying asset “touches,” exceeds or falls below a predetermined barrier. This type of binary options trading gives the investor the power to set the barrier, the time of expiration and the payout to be received if the barrier is surpassed. Like regular binary options trading, there are only two outcomes with one touch options: the barrier is met or surpassed and the investor collects the full return or the barrier is not reached and the trader loses his investment.

Let’s look at a one touch example within binary options trading. It’s Saturday and you log in to your online binary options trading provider. You see that the Dow Jones closed the week at 10.566. Your binary options trading provider offers you a one touch option: invest $100 or more in the movement of the index and if its daily sampling price touches or exceeds 10.791 by 6:00 PM the following Friday, you collect a 350% return.

Now you are at home; it’s quiet and you have some time to think about how you want to invest your money in binary options trading sites. According to the financial round up articles you read about the week that has gone by, you don’t foresee the Dow Jones moving toward 10.791 in the coming week. In fact, your hunch is that it will drop, if anything. So instead you choose another one touch option from the list on your binary options trading platform. You decide to invest $100 in the notion that the Dow Jones will fall to 10.372 or lower by following Friday. If your prediction becomes a reality any time between now and the date of expiry, you get a 150% return on the $100. That’s an easy $150.

The benefits of one touch binary options trading

The most obvious benefit is that one touch options usually have higher returns than regular binary options (60-71%) One touch options are useful for investors who think that the price of an underlying asset will surpass a certain level in the future but may not sustain it. Becoming more popular in commodity and index binary options trading, one touch options do not have to be cashed in at their time of expiry. They can be cashed in at any point during their life, which make them a good hedging tool for stock option strategies or forex spot positions.

How do I take advantage of this type of binary options trading?

One touch options are available from online binary options trading platforms like anyoption.com. Every weekend after the markets close, anyoption.com offers investors to purchase short-term one touch options for the week following. These options have a guaranteed return between 200 – 380%. One unit is priced at $100 so that beginner traders who do not want to invest high can also trader one touch options. You can invest in up to 40 units per option. Anyoption.com offers a special weekend 380% return on underlying assets like the FTSE 100 and 350% returns on the EUR/US currency pair. They have a very user friendly one touch binary options trading interface where all you have to do is choose the amount of units you want to invest in and click on “buy.” Payouts are transferred directly to the investor’s binary options trading account.

Now you don’t have to go the weekend without a trade. Try one touch and where it takes your investments…

Here is where the binary options angle comes in. If the company does receive FDA approval for its new product, its shares will go up. If FDA approval is denied, shares could plunge. In digital options trading talk these black-and-white situations are usually called binary outcomes. Either they work “one” or they don’t “0″. This is exactly how fixed returns options, or binary options work.

If the zero outcome sounds like too much to handle but you think this company’s stock might really go up, you should consider call binary options. Binary options trading allows you to increase your payoffs while clearly defining your losses. In binary options or fixed return options, the buyer (trader) enters into a contract to purchase an underlying asset at a fixed price at a predetermined time in the future. That means you are not actually buying anything, just a contract that gives you the option to acquire a security for a predetermined price on a specified date and time.

Let’s go back to our example of the healthcare and pharmaceutical company. Let’s imagine that it is currently trading at $10 per share with the possibility to rise if its product gets FDA approval within the next few days. You decide to go for binary options instead of buying the actual stock. You decide to purchase a $50 call option that will expire in two days via an online binary options platform. Binary options have fixed returns so you know in advance what your payout will be if your binary options expire in-the-money. In this case, the online binary options platform offers you a fixed return rate of 70%.

Our binary options trading scenario continues with good news. Some 40 hours after your binary options purchase, the FDA approved the company’s new product and the stock shoots up. Your binary option expires in-the-money, just as you predicted. Your return is $85. So at the end of the day, you risked $50 in binary options, received it back and earned $35 as a result of the fixed return options you purchased.

Many traders new to binary options buying ask the question “Wouldn’t I be making greater profits by actually owning stocks instead of buying digital options?” The answer is yes. If you had bought the healthcare and pharmaceutical company’s stock in the example above, you could have made higher returns, but you would have had to risk more capital in order to get a significant payoff than when you trade binary options. With binary options, you can risk smaller sums of capital and still get a worthwhile payoff without putting too much at stake. In addition, there are some binary options platforms that will pay out a 15% return on out-of-money results, which is a significant advantage to fixed return options trading.

So let’s conclude with the major benefits of binary options trading. The first benefit is the quick turnover. Binary options expire on an hourly basis, meaning your returns can pay off on the same day instead of waiting weeks, months or years to reap earnings from other forms of investments. The next major plus is that binary options trading has low entrance requirements. It only takes $100 to open a binary options account as opposed to thousands of dollars required to open a traditional options account through standard brokerage.

Another great benefit to binary options is that you don’t need to understand finance in depth to participate in fixed return options trading. All you have to do is make an “up or down” choice on the world’s most well know stocks, indices or currency pairs and decide how much you want to invest.

© 2009 – 2010, Binary Options. All rights reserved.

So what exactly is a binary option? A binary option is a contract, where a buyer has the right, but not the obligation, to buy an underlying asset at a set price within a specified time frame.  This sentence is better explained when the different elements are each broken down:

Underlying asset – this is the item which the option derives its value from. Examples of assets in option trading are commodities (such as Oil), indices (such as the Dow Jones), currency pairs (such as USD/EUR) and stocks (such as Microsoft).

Set price – this is the price barrier, that the option needs to be above or below, for the option trade to expire in-the-money. This is fixed at the time of the contract and is known as the strike price.

Specified time frame – or in the case of option trading it is known as the expiry time. This dictates the time at which the option will expire. A buyer can select from the end of the hour, day, week or month.

It’s important to note that in option trading, the buyer is not trading the asset itself, rather he’s trading the right to buy the contract. This greatly affects the way an investor behaves and it generates different opportunities in the trading world.

So, you’ve selected your asset, the price has been set and the expiry time chosen. What next? Now it’s the crunch time – will the asset go up or down in price. It’s your choice. If you think the asset will go up in price then buy a Call option. This means that if the price of the asset is above the strike price at the expiry time then you will be in-the-money. If you think the asset will go down in price then buy a Put option. This means that if the price of the asset is lower than the strike price at the expiry time then you will be in-the-money.

If you are trading options on the anyoption™ platform then the return rates from your option will be a 65%-71% payout if the option expires in-the-money, and a 15% refund is paid out if the option expires out-of-the-money. If the option expires at-the-money i.e. at exactly the same price as the strike price, then you will receive 100% of your investment back.

The best way to explain option trading is through an example:
You decide that the price of Gold will soon rise and would like to profit from it. So, you place $1,000 in a Call option, expiring at the end of the week with a return rate of 71%. The strike price is set at 73.890. The price of gold fluctuates throughout the week, and depending on the price at the expiry time, there are 3 possible outcomes:

1)The option expires at 73.891. Since this is above the strike price, the option expires in-the-money and the buyer receives a payout of $1,710.
2)The option expires at 73.889. Since this is below the strike price, the option expires out-of-the-money and the buyer receives a 15% payback of his investment i.e. $150 (this is available when trading on the anyoption™ platform).
3)The option expires at 73.890 exactly and the buyer receives his $1,000 back in full.

To explain this further, when trading an option in situation no.1, the option is said to be in-the-money because the buyer theoretically has the right to buy the stock at a price which is lower than the price he would pay if he bought the asset in the current market.
If the option had instead been a Put option and situation 1 occurred, then the option would have expired out-of-the-money because the buyer would have sold his option at a price lower than the market price.

As shown, option trading has a simple structure that makes it an attractive profiteering method for many investors. See Binary option trading for more information.

source: Options Trading

In binary options trading though this is different. Yes, the trader, otherwise known as the buyer, will look into the market and yes he will decipher which way he thinks the market will move, but the outcome and method of profiting is somewhat different.

Here the differences are clearly explained:
Traditional trading: there are a multitude of possible outcomes, none of which are known when buying the asset
Binary option trading: there are only 3 possible outcomes – or the asset expires in-the-money, out-of-the-money or at-the-money. All three outcomes are fully known when purchasing the option and therefore all potential risks can be taken into account.

Traditional trading: the profit or loss is dependent on the magnitude of the price rise/fall of the asset e.g. if 200 shares are brought at $10 each, the amount of profit or loss is totally dependent on how much the price of the asset rises or falls
Binary option trading: it is only the direction of the move that is important and not the magnitude of it. So, if a buyer places a $2,000 Call option on an underlying asset with a 71% return rate, he knows from the onset that if the option expires in-the-money then he will receive $3,420 and if it expires out-of-the-money then he will receive a 15% payback of $300.
This is because all of the outcomes of a binary option trade are known from the onset of the contract. This reduces the risk factor and also limits the knowledge that a buy must have before he purchases an option.

Traditional trading: the trader owns the asset itself
Binary option trading: a buyer is just trading on the performance of an asset

Traditional trading: the trader will need an in-depth knowledge of the market and the asset being traded
Binary option trading: a buyer need only have a sense of the direction in which the asset is likely to move in since he is just trading on the performance of an asset, rather than the magnitude of the price change

Traditional trading: the asset can be sold whenever it suits the trader
Binary option trading: when buying the contract, a buyer can decide between different expiry times – end of the hour, day, week, or month. Once his expiry time has been selected and the option is purchased, this cannot be altered or reneged.
Binary option trading is an extremely unique method of investment and it creates a new and exciting offer for those wanting to control their investment risks.

source: Binary Options Trading

Each investor has his owns methods and systems of trading binary options. The strategies listed here are not fool proof nor is the list exhaustive, but they are industry accepted methods which are deemed beneficial by many investors.

The Reversal
This is based on the concept that if an asset suddenly moves in one direction, it is unlikely to remain at that peak but will move back towards its original position, if not all the way. So, an investor should buy an option, Call or Put depending on whether the price has risen suddenly or fallen suddenly, on the assumption that it will soon return and stabilize. Of course, no-one knows when an asset has reached its peak. So close monitoring of the asset and researching why it peaked is vital to deduce the likelihood and timing of its return.

The Straddle
This strategy is more complicated as it involves buying both a Call and Put option on the same asset. The premise is to straddle the asset at a low point and at a high point, so that the area in between the two options can be a double success for the investor. This is often used when the volatility of the asset is high and so an investor wishes to protect himself. An expiry level in between the two strike prices would be ideal, however if it falls outside of this parameter, then at least one option would expire in the money. The Call and Put options do not have to be bought at the same time. Rather an initial option can be bought with a longer expiry and the second purchased once the asset’s direction is more established.

Note that the straddle in binary option trading is different from with vanilla options since the purchase price and exercise rights differ between the two.

The Knock on Effect
This is the most logical of the strategies. The idea is that a move in one asset will have a knock on effect to another asset. For example, the price of a stock may affect the price of the index in which it trades. Or if a country heavily relies on a particular asset, then a change in that commodity’s price may affect the country’s exchange rate. The key here is to understand the connections between assets and be prepared for movements in either one.

source: Binary Options Trading Strategies

In option trading, a buyer can select between different underlying assets for his online investment. He may trade in currencies (e.g. USD/JPY) known as forex option trading, commodities (e.g. Gold) known as commodity option trading, stocks (e.g. Google shares) known as stock option trading and indices (e.g. FTSE 100) known as index option trading. The anyoption™ platform offers over 50 possible assets to invest in. The buyer must then select his preferred expiry time: the end of the hour, day, week or month.

Purchasing an online investment works like this: a buyer decides whether he thinks that by his selected expiry time, the chosen asset will be above or below the strike price. If he thinks that the asset will settle above the strike price then he purchases a call option. If he thinks that the asset will settle below the strike price then he purchases a put option. (see article ‘option trading’ for more information).  This can all be carried at out at the click of a button by trading online.

A trade is successful depending on whether the contract expires above or below its strike price. Using the anyoption™ platform, a trader receives a 65%-71% payout when the option expires in-the-money, and a 15% payback if the option expires out-of-the-money.

For example, Investor A places a ?100 online investment on the price of Gold, currently sitting at 955.10 with a return rate of 70%. He selects a call option with an end of the day expiry. If at the end of the day, the price of Gold is 955.11 or above, then Investor A receives a payout of ?170. If at the end of the day, the price of Gold is 955.09 or below, then he receives a ?15 payback. This is a typical online binary option trade and its formula is simple to follow for other assets.

Online option trading is a growing preferred method of investment for many investors. There are several reasons supporting this:

1. Option trading is a type of binary option – this means that an option is being trading, rather than the asset itself. So, the payout is determined once the contract has been created. There are only two possible outcomes in binary option trading: or the option expires in-the-money and the owner receives a fixed amount of cash; or the option expires out-of-the-money and the owner receives nothing. Or in the case of trading on the anyoption™ platform, they receive a 15% payback of their initial investment if the option expires out-of-the-money.
2. Options are easier to trade since the buyer only needs an idea of which direction the asset will move, up or down, rather than predicting the magnitude of the change. This makes it easier for the buyer to receive a payout.
3. Option trading is extremely flexible, due to the wide choice of underlying assets and expiry times available.
4. The online trading risks are much lower, since the buyer controls how much he invests and the most he could lose is 85% of his investment amount. Once the investment has been made, regardless of the magnitude of the price change, the investor will not be called upon for more money.
5. Investments are easily carried out online using the anyoption™ platform, so a trader need not use a broker and can trade from most geographical locations

source: Online Options Trading

A binary option is a contract which gives the buyer (known as the owner) the right, but not the obligation, to buy or sell an underlying asset at a fixed price within a specified time frame.

The underlying assets being traded could be currency pairs (e.g. USD/GBP), commodities (e.g. Silver, Copper), stocks (e.g. Apple, Vodaphone) or indices (e.g. Dow Jones, Nasdaq). The strike price is the industry name for the fixed price at which the asset is bought.

When trading binary options, the buyer must decide whether he thinks the chosen underlying asset will hit the strike price by the selected expiry time. The expiry time can be at the end of the nearest hour, or the end of the day, end of the week or end of the month.

There are 3 aspects involved in placing a binary option trade: selection of the asset, selection of the expiry time/date and selection of the direction the asset will move in.

If the buyer believes that at this chosen expiry time, his binary option trade will be higher than its current price, then he purchases a call option. If the buyer believes that at this chosen expiry time, his binary option trade will be lower than its current price, then he purchases a put option.

The returns from binary option trades are known once the contract is made. If an option expires in-the-money then a buyer will receive between 65-71% profit on the investment amount. If an option expires out-of-the-money then with anyoption™, the buyer will receive a 15% payback on his initial investment. The controlled risks with binary option trading makes it a preferred method of trading for many investors because the potential gain or loss is known from the offset, so all possible situations can be planned and accounted for.

With the development of the internet, binary option trading has expanded to online platforms. This means that a buyer can purchase binary options from the comfort of his own home, without the need for a broker. Using the anyoption™ platform, a buyer can follow the market trend of an asset and see all his past and current investments in a clear fashion.

In this respect, trading binary options online is extremely flexible. The asset, expiry time and predicted asset direction can be controlled by the owner of the investment who can tailor make the option to suit his needs and knowledge. The only unknown factor is whether the asset will expire above or below its strike price.

source: Binary Options Trading

The benefit of options trading over stock trading is that there is a much greater potential of succeeding in the trade, then if a person bought the stock itself. Also, since stock options only cost a fraction of the actual price of the underlying stock, it allows investors to participate in the move of high priced stock, using only a small capital outlay.

It’s important to note that option trading is different from stock trading. When an owner is buying or selling actual stock or ownership in a company, this is known as stock trading. However, in option trading, the owner is buying the option i.e. they are entering into a contract to buy or sell stocks at a fixed price within a specified time frame.

There are different types of assets available for trading options: stocks, commodities, currency pairs and indices. anyoption™ offers over 50 assets which can be traded online. Investors can choose from indices in the United States, Europe, the Americas, Asia and the Middle East; 12 different combinations of currency pairs; commodities of copper, gold, oil and silver; and stocks in top companies such as Apple, Coca Cola, Google, Microsoft and Barclays.

A trader can also choose between different expiry times: to the nearest hour, end of the day, week or month. This makes options trading an interesting and flexible way of trading which is appealing to many news traders.

anyoption™ offers a trader a 65%-71% payout when the option expires in-the-money, and a 15% return if the option expires out-of-the-money. An option cannot be sold before its expiry time

source: Options Trading