Ever heard of a way that you can trade price fluctuations in the global financial market? If not continue reading as this piece will focus on what binary options are, their types and the ups and downs of this trading option. Binary options are completely different from other common and traditional trading options and often are misunderstood by many people. The difference arises in terms of rewards, risks and fee.
Understanding Binary Option Trading.
Not many people understand what how binary options work but to put is simple it is predicting whether the price of a stock or currency will be higher or lower than the price at which you entered the market in the case of a high-low binary option. Most binary option brokers will allow traders to invest using the binary options in currency, stock commodities and indices. Binary options have an expiry date or time after which traders are paid a fixed amount or percentage if they predicted the right movement of the price of stock/commodity/indices/currency at expiry.
This price is refereed to as the strike price in trading. If an investor predicted a wrong movement then they loses their investment. Some brokers allow investors to close positions even before the expiry of an option. An example of a High-Low binary option. Lets take you choose to trade on the EUR/USD currency pair. When you log into your binary option account you will see a chart showing the current price of the pair. You will then choose the direction you expect the price to move either will the price be higher or lower at the expiry of the option. Most trades close three minutes before the expiry time. When the option expires and lets say you predicted that the price will have gone high and it actually goes high irrespective of the margin then you have made a profit the payout will be calculated by multiplying your investment and the payment ratio. if movement is on the opposite direction then you will have lost your investment.
Advantages of Binary Options
The risks and rewards are known by the trader before making the trade. One does not need to worry about how the market moves in the long run. With only one decision to make this makes this trading option simple to use and understand.
Setbacks of Binary Options
In High- low binary options rewards are always smaller than the stake. This means that a trader must ensure a high winning rate to make profits. Losses are made to the full amount of your investment.
It is always advisable to try a demo account to gauge your expertise before investing in a live binary option account.