Binary options means to speculate on whether the price of an asset (a product that is traded on the financial markets, such as Volvo shares, gold or Euro), will rise or fall within a given time frame. The only thing to speculate in here is whether the price will go up or down. Not what the final price settles on. Those who are well-read and have a feel for trading binary options can earn a lot of money.
It is called binary because there are only two possible outcomes; either you are right or wrong. They are also called all-or-nothing options or over-and-under options. This means that you already know from the beginning how much you will win or possibly lose. With binary options, you can thus control your risk.
Trading in binary options usually means lower risks than dealing with another form of currency trading. The main difference is that you do not buy an asset, but are speculating on the movement of assets. That is, you can speculate if a stock goes up or down in price within the selected time frame. Often, time frames range from 30 seconds to the close of trading that day. It’s up to you to decide the time frame that best suits you. If you can manage a bit of a wait, maybe longer periods will suit you best.
Even if a stock falls, you can, by speculating in binary stock options, still make a profit, thanks to your speculation on a fall in prices. A binary stock option can also provide a great return on a small investment.
Financial trading and market knowledge
Trading in binary options is classified as financial trading. You can choose to trade binary options within a wide range of opportunities. There are up to 180 different assets to trade with. You can make multiple transactions simultaneously, if for example, you want to trade in various assets at the same time.
The more you learn, the more you will understand the market and be able to predict its ups and downs. It is important to know how the market works and what lies behind the various changes that constantly take place. There is a wealth of material about how you should trade and think strategically about binary options, but anyone who wants to make money should keep abreast of what is happening through different news channels and flows.
For example, rainfall affects sales of agricultural commodities such as coffee, while political unrest in an oil-rich area may affect the price of oil. In addition, major economic announcements or reports that are published regularly, such as high unemployment records, affect a country’s economy and how its currency is rising or falling. Even a new Apple or Samsung product could affect stock prices.
Different binary options
Classic binary options
Classic binary options are options where you have to correctly predict if the underlying object will go up or down in value during the time frame. The time frame normally varies between one day and one month.
Short term binary options
These options work just like regular binary options but have a shorter maturity. The most common is 60 seconds, but some brokers offer time frames down to 15 seconds.
One Touch Options
If you buy a one touch option, you can predict that the underlying asset will move either above or below a certain value during the term. If the supply reaches the value during the term, you earn money.
When you trade in these options you are trying to predict whether the underlying asset will be within or outside a given range/interval when the option expires. If you predict correctly you earn money, otherwise you lose your investment.
Steps or ladder options
Here, the investor receives several price levels, located at an equal distance from each other, just like the rungs of a ladder. A binary option ladder indicates how the price of an asset should be developed over time.
Contracts for Difference = CFDs. Directly translated to Swedish, it will mean a form of contract for difference. When you buy a CFD, you trade in the change in the underlying asset’s price, but you never own it. You could, for example, trade in oil, gold or currencies without having to physically own them. Most CFDs have no maturity. Instead the investor decides when the contract should be terminated.
One advantage of CFD’s, compared to other financial instruments, is the simplicity of the pricing. A CFD mimics the price of an underlying asset, which means that they basically have the same price. However, pricing may differ slightly between a CFD and the underlying asset, depending on which instrument you’re trading, and with which CFD broker.
When you trade in CFD’s, you use something called security. The security or margin requirement is a percentage indicating how much of the total value of the position is reserved by your capital.
Let us assume that you want to buy 1000 shares in a company, in which each share costs 10 euros. In regular stock trading you buy 1000 shares for 10 euros apiece, meaning you need to have 10,000 euros in your account. If we assume that the margin requirement of CFD’s for the company is 10%, this means that you use 1,000 euros (10,000 * 10%) of your capital to invest 10,000 euros.
The margin requirement thus enables you to invest more in the market than what your account is worth, and thus creates leverage, also called a leverage effect.
Here you speculate in whether market events will lead to a currency rising or falling in value in relation to its counterpart within a pairing of assets.
Foreign exchange trading is the world’s largest trading market, much larger than the trading of shares and securities. The forex market involves the trading of so-called currency pairs such as EUR/USD, and follows a currency’s relative value in relation to another.
The base currency, the euro in the example above, is always to the left in the pair. Its counter currency, in this case the dollar, is to the right. The EUR/USD therefore represents the cost of buying one euro in dollars. If the EUR/USD rises in value, it means that the euro has strengthened against the dollar. If the pair value falls, the euro falls against the dollar.