Binary options trading is one of the biggest polarizing types of investments out there. Some investors see it as easier or more pleasant than the standard acquisition and sale of stocks. Others see it as a process that is very much involved with gambling, and subject to rigged conditions and other scams.
Different investors have different experiences with binary options trading, and there’s not certainly a “correct” answer of whether it’s great, bad, reliable, or dangerous. To help you make up your mind, we have created this article, here you will discover what binary options are.
Binary options trade is quite distinct from bonds, stocks, and mutual funds; even so, they are simple to understand as well. In this investment method, an investor doesn’t invest in an organization (i.e. Google, Apple, Microsoft, etc.), rather, they bet on price fluctuations in the cost of particular options. Peoples, who bet correctly will gain a predetermined sum of money; those who take the wrong step, well the result is obvious, they lose every penny they had invested.
For example, if your broker is offering a 91 % profit and the USDEUR rate is 1.15562 and you place a USD100 “Buy” for 1-minute expiry, and one minute later if the rate grows to 1.15563, you will get back your invested USD100 and then another USD91.00. If the prediction is right, the investor will recover his or her investment plus a bonus on top—if they’re wrong, the investor loses the whole amount put into the plan. It’s an attractive method of investment because the investors get the result quicker as compared to FOREX and it requires fewer skills.
Types of Binary Options: A Comprehensive Guide
In the beginning, there was only one type of trade you could take, called High/Low, or Up/Down, or Call/Put. All of these options are the same thing. However, nowadays, Binary Options presents more flexibility to investors. Traders now can personalize their investment according to their needs. This is beneficial when compared to traditional options. By using this flexibility, binary options brokers introduce a few brand new sets of derivative products that offer exceptional growths. Following is an overview of these various types of Binary options and how they work.
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High/Low trade: High/Low traders also recognized as Up/Down, or Call/Put investors. This is the most basic type of binary option trade. For the common high-low binary option, the investors buy a binary call option if he/ she thinks the cost of the underlying asset will go up above the present market cost or if the investor decides the underlying asset price will go down, then he/ she will buy a binary put option. If the presumption is correct, the investor will receive a payout. Otherwise, he/ she loses the primary investment. High/Low trades have both short and long expiry times, ranging anywhere from 60 seconds to a few days or maybe longer.
Here is an example of a High/Low trade:
You think that the cost of silver will go up by the end of the trading period, so you look up the silver on your trading platform. You see a High/ Low trade available with an expiry time of a few hours, near the end of the trading day. Believing that the silver price will surely grow above its present price based on your trading methods and expertise, you decided to enter into High/Low trade and picked “High” or “Up” as the direction of the trade. After waiting for a few hours, the cost of silver grows up, your prediction was spot on and you will receive a payout. Congratulations!
This is another very common trade type which consists of three types of touch options. These are touch, no touch, and double touch.
An investor who bets on touch binary options is trusting that the price of a particular option will increase to or over a specific amount. No Touch is a simple variation where an investor bet price will not touch the trigger point within the expiry time. These trades are directional since the trigger point rests in one direction or another, however, they are also more precise than High/Low trades. They can offer higher payouts. On the other hand, an investor who bets on double touch options puts two separate bets on two separate positions. Such an investor gains money if either of these conditions is met.
The touch trading option is quite different than High/Low trading. When an investor opt-in for a touch option, he/ she places a trigger point, which can be present anywhere on the chart. Generally, the further away the trigger point is from the present cost of the asset, the possibility of earning greater payout grows. A point which is placed near the present price, which is more comfortable to reach offers a lower return, because the risk is lower.
Here is an example of Touch Options:
You believe that the stock of Facebook is going to rise within the next couple of hours. You are certain it will reach a particular cost before dropping back down. You put a One Touch trade on the Facebook stock, betting it will touch that price within the next few hours. After 1 hour, you see your assumption was correct, it touches the price you defined, and you make money since the option has not yet expired.
Sixty Second Binary Options:
Sixty-second binary options are generally the same as High/Low trade. However, an honest question might arise is that if they are similar then why they are set aside?
Well, the reason is it’s a specific kind of High/Low binary options trade that takes place in a very short time frame. As the name suggests, each 60 Second trade lasts for a single minute before closing. The abilities needed to be successful in sixty-second trading options are quite unique. There are numerous challenges posed by trading fast which investors do not need to deal with when you trade over longer periods.
Here is an example of Sixty Second Binary Options: You are browsing the chart of gold in real-time, and your experience says that the gold price is about to increase in the next 60 seconds. You have your trading platform with you and you browse through the gold section, you see a sixty-second option is available which will expire in one minute. Without wasting a second, you put your desired amount you want to trade, now the trade process has been successfully initiated and for the result, you must wait 1 minute. After sixty seconds your prediction became true and 60 seconds later you win.
Boundary Options: As the name suggests, boundary options offer two price levels; the upper and lower level and both are determined by the investor. The price range can be narrow (i.e. between $11.20 and $11.30) or broad (i.e. between $11.00 and $20.00). The investors’ job is to assume if the cost level of the assets of your choice will remain within the designated range or go beyond that range. The investor has to choose the expiry time as well. The longer the expiry time frame the wider the boundary. In this trading process, an investor wins when options do indeed remain within the defined price range for the predetermined period.
Here is an example of Boundary Options: Let us take the USD/EUR currency pair for an example. Which right now at 0.7115 and the market is volatile. Hence, the investor believes that the price will not stay in a particular range. Let us have a lower level at 0.7100, a higher level at 0.7128, while the expiration time is 48 hours. If in 48 hours the price of the USD/EUR currency pair is below 0.7100 or grows more than 0.7128, then the trade will be closed on the money.