Binary Options trading can be defined as a form of high-risk investment. In this case, investors have to invest their money in the form of a contract. After coming into the contract, he needs to predict whether its value will increase or decrease at the time, when it expires. In case he gets the prediction going his way, the investor can make a significant amount of money, which is close to 80% of the amount invested. At the same time, in case the contract value fails to vary as per your prediction, the investor might have to settle down with no return at all.
Putting in stock market terms, in case a trader opts for a “call” on the asset price, he is predicting that the price of the asset is going to increase at the time of expiry. However, in case he opts for “put”, he is predicting that the price is going to decrease at the time of expiry of the asset. Once you have made a selection of whether it will be a ‘call’ or a ‘put’, the trader purchases some options of the said asset and wait for the fate of the investment till the asset eventually expires.
Such a form of trading is referred to as binary options trading, since there is only couple of outcomes possible in the outcome of the investment, which is made by the trader: either there are huge profits or complete loss.
Binary Options Example
If you have a look at an example of binary options trading, you will be able understand its concept:
- Commodity price at a particular time is USD 100
- You opted for ‘call’ for that commodity at the time of expiry and bid USD 100
- At an hour later, which was the time of its expiry, the price of the commodity ended USD 10 higher. Then, you would end up winning a lot of money as per your prediction. Normally 80% of your investment, the idea is that the time of expiriy can be 60 seconds!
- Again, if the price goes lower at the time of expiry, it is going to spell you a disaster. You will end up losing your entire investment.
On the whole, binary options can be your ticket to success, in case you wish to earn a lot of money in a short turnaround, if things are going your way. However, you should keep in mind the risk involved. Thus, it is important for you to select the right binary options broker and make a considerable amount of investments while doing binary options trading.