Recently binary options became a part of online trading as an alternative opportunity for big and small investors to make profit during a short period of time in Singapore and other countries in the world.
Binary options are options that give a fixed amount of profit or no profit, depending on the condition of the expiration of an option.
Binary options are also known as all-or-nothing options, because they either make a profit (all) or do not bring anything. As the profit is fixed, these options are also known as options with a fixed profit (FRO’s-Fixed Return Options). Sometimes they are also called as digital options. In simple words, all a trader needs is to determine the direction of the rate change, i.e. decide whether the price of the trading asset will grow or decrease.
Today binary options are considered as one of the most popular commercial instruments and the fastest growing segments of the simplified trading products. They let a trader know the maximum loss and profit from the very beginning of trading.
Binary options have only two possible outcomes with a certain profit and risk, that’s why they are called “binary”. Recently they became a popular instrument in the financial markets, as they provide online traders with a flexible trading approach without the complexities associated with traditional options. Regardless of whether you need short-term positions or hedge your funds, binary options can help you get a high return in a short time. Therefore, today binary options are gaining popularity among traders around the world.
Binary contracts are available for the following instruments: equities, commodities, currencies and indices.
Regardless of the choice of the trader Call/Up or Put/Down, if at the end of the contract the trader was right about the expected direction of a price movement, the option will be profitable. On the contrary, if a trader made a mistake in determining the direction, then the contract will be unprofitable.
In the case where the final price is equal to the initial one, the contract does not make any profit or loss of the money. Usually in such situations, a fixed amount of money that was originally invested will be refunded, although it depends on the contract itself.
A binary option reflects a special position of the instrument in the financial markets in a certain period of time.
For example, Google’s rate is currently 430.25 and you want to make a position for one hour. If you think that Google’s rate will rise above the current price, then you need to acquire a binary call/up option. If the price rises above the current price at the time of the expiration of the option, the option will be profitable and will bring you a specified income. If the price is lower, the option will not be profitable.
If you believe that the rate falls below the initial price, then you need to buy a binary put/down option. If the price of Google will be below the current price at the time of the expiration of the option, the option will be profitable and you will make income. If the price is higher, the option will not be profitable.
Binary options trading strategy:
A typical strategy to trade binary options is to choose Call or Put in the time of a significant shift in the market, especially if the change was unexpected.
Usually when trading binary options traders select positions that are associated with the events that have a profound influence on market prices. For example, quarterly announcements of big companies about their income or loss is always interesting to traders, since positive or negative results often have a significant reflect the markets’ movements. In addition, traders are watching the news because many different events can affect the condition of markets. For example the natural disasters can influence on the political situations. But of course, the best strategy comes with an experience that can not be taught.