What Are Binary Options Used For?
Binary Options are applied to a large variety of assets in trading such as : Stocks, Indices and Commodities as well as many others. They are mostly used as a means of trading price fluctuations in a given range of global markets. Since Binary Options are a different style of conventional trading, it is imperative that trader’s understand the risks and rewards of this specific style of trading. An example of the different risk and reward can be understood in the fact that Binary Options have a given expiry date and time as well as a strike price. In all binary options’ exchange there is a buyer and a seller, except that in Binary Options the exchange matches the buyers and the sellers within a regulated environment.
What Are The Different Types Of Binary Options?
-Calls / Puts:
This type of Binary Option is the most common one, which we have briefly explained above. It refers to when the trade between seller and buyer are set upon whether an option is going to increase or decrease. This option involves predicting whether or not an option’s value will increase or decrease and where its price falls when the option’s time expires.
-Touch or No Touch
This type is played out when an investor bets on a specific value that an option will reach or not. The bet can also be placed by a broker with an ‘Option Builder’.
This type of Binary Option is also referred to as boundary trading and is carried out by betting on whether an option will remain or exceed a set price range. Two extremes are set, a high value and a low value thus, creating a set price range and according to this range, traders bet whether an option’s value will shift in or out of the range.
There are many terms that may at first, seem complicated but that we recommend all trader’s acquaint themselves with, of which are the following:
Call Option: An option purchased by traders who are anticipating a specific rise in value of an asset.
Put Option: An option purchased by traders who are anticipating a specific downfall in value of an asset.
Underlying Instrument: An asset upon which an option is structured. Commodities and Stocks are the most known examples of underlying instruments.
ATM (At The Money): An expression used to refer to when an option’s strike price is identical to the underlying instrument.
ITM (In The Money): An expression used to refer to a beneficial position for the trader since the strike price has fallen below or risen above the futures contract price set on an option.
Payout: The % return on a trader’s or broker’s investment.
Strike Price: The price that is decided at the outset of a trade and directly determines whether a trader is In or At The Money.
Option Expiry: The exact date and time given to an option to set its expiry.
Early Closure: An offer to close an option before its set expiry.
Expiry Level: An expression used to refer to the price of an underlying instrument at its expiry.
Market Price: The expression referring to real monetary value of an underlying instrument.
There are several important reminders before you decide to go through with Binary Options Trading, of which are the following:
- $10 is the conventional minimal amount for trading
- Risk = Trade Amount
- Binary Options is direct trading on price movements
- Up and Down is the most conventional type of Binary Option