A Close Conception of Binary Option Trade

Binary option trading was named so due to the fact that in this kind of trade, there can be only two results; loss or profit. It’s a quick, ‘all-or-nothing’ trading type, very easy to understand – thus, very simple to manage. When the traders use good all-or-nothing options strategy, the opportunity to get a profit growth is high.

If traders think that the share value will rise, they choose a call option, and if they think that the price will drop, they position ‘put’. So, how it works in practice? If investors think that the share price of Apple, Inc. is going to rise, and will be more than $575 at 2 pm on a particular day, they position ‘put’ and risks their $200 for this deal. Thus, if the price crosses, or reaches the mark of $575, they will win $200, that’s, they will get $400 on their account. But if the price falls lower of the mark of $575, they will lose their money. It’s the main conception of binary options trading.

The time of deadline (2 pm in the above example) is named the ‘maturity date’ or ‘expiry time’. The price direction which traders predict for an asset to increase above (in the example above – $575) is named the strike or initial price. The greatest advantage of digital options trades is that the traders put only that money to risk that they can go to lose. In the instance that is above described, the traders lose only their $200.

Binary Option Brokers

In a lot of cases, traders conduct binary business via brokers and trading companies. Such companies provide the traders with a payout, if the price ends up above the initial price that ranges 70 to 90%. For instance, if a digital option platform offers a payout of 90%, a trader will receive $380 from their investment of $200. But if a trader loses, they get a little rebate (in most cases it is 10%).

In digital option trading, the range to which the share price rises doesn’t matter. The traders will surely get the same amount on their investment if it ends up even a little bit higher compared with the initial price.

Types

There’re two types of binary options: asset-or-nothing digital option and cash-or-nothing digital option. The example above given is an instance of the cash-or-nothing digital trading options.

In asset-or-nothing digital trading options, the traders get the amount that is equal to the share price, if they win. But if they lose, they lose the amount that they invest in this deal.