Have you heard of the current rage, called binary options trading? It has recently been called one of the most controversial trading instrument out there and there are two primary reasons for this:
First, it is very beginner-friendly and has many features that make trading simple. You can get started with minimal start-up cost and can open a trading account for only $250!
But the second reason it’s controversial is because there are so many scams out there around this trading system! There are some brokers that have taken advantage of new investors. You should be super careful if you are planning to start trading binary options. These brokers usually come from far places; mostly overseas (where financial tracking and systems are monitored or federally regulated). often, investors will wire over money to open their account, but never hear from their broker again.
This might sound worrisome but, we will show you how to learn the ins and outs of binary options trading! But can you make money through binary options? Absolutely!
What is a Binary Option?
Binary option trading is one of the many ways for you to earn money while at home. This trading instrument or a financial product allows a buyer to either receive a payout or a loss. Those are the only 2 options (hence the term “binary”). You set an option on a trade based on a strike price and the value of the underlying asset moves and up down. When the option expires, depending on which side of the strike price it falls on the trader has either generated a profit or a loss.
It is also important to take note that a binary option exercise automatically. This means that any loss or gain will be credited or debited directly from the trader’s account once the option expires.
A binary option is as simple as predicting whether the shares of a company will be above or below a certain amount during a certain date and time. The theory is simple but knowing which was the asset will move is the whole trick.
Elements of A Binary Option
If you are a beginner in trading then it is important for you to know these basic elements of a binary option. So check out this list as this will help you understand the basic terminologies of binary option trading.
- Strike Price- This is the value or price at which the contract will execute
- Underlying Asset- an asset which value or price is measured in the contract.
- Expiration- This is the exact date and time at which a contract will execute.
- Expiration Price- the price or value of the asset when the binary option executes.
- Position- If you are buying a binary option, then you will profit if the underlying asset is above the strike price. On the other hand, if you are selling a binary option then you will profit if the asset’s execution price is less than or below the strike price during its execution.
- Bid/ Ask Spread- The bid or ask price is the price or value at which you can buy and sell a given binary option. A bid or ask price of 50/50 simply means that the market is absolutely unaware of how a certain contract will resolve. If the value of this is higher then this means that expert traders think that there’s a high probability that this certain contract will close in the money. The difference between the bid and the ask price is about the transaction cost that the market charges to conduct the transaction and it also reflects the liquidity of the particular contract.
How Does A Binary Option Work?
You will better understand how binary options work through looking at an example. Don’t worry, we’ll guide you through each step!
When you are on a binary options trading platform, the only thing that you need is to decide. You need to make a decision whether a stock or a certain market will be above or below a certain price by a certain time.
Take a look at this example:
Let us say that after reading a lot of articles about the prediction of the price of Gold, you finally made yourself believe that its price will go up. You have this strong feeling backed up by data that its price will close above $1,800 by the end of the day. This is the reason why you will place a binary options trade. Moreover, the value of that binary option should be between $0 and $100– this is the amount that you need put on the table to place your bet.
So, you have decided to pay $40 dollars to place the bet, a broker will then take out that amount from your account. If by the end of the day you are right about the price of Gold rising to $1,800, then you will win. You will get $100 back, so you earned 60% profit.
However, if the price of the gold closed below $1,800 that means you lost. You will get nothing back even the $40 that you staked.
Earnings Through Binary Option
You can absolutely profit from binary trading. Actually there are individuals that make a living trading only these financial instruments. And take note that we are not just talking about some earnings, we are talking about a huge sum of money! However, you need to make sure that you engage in a legitimate binary options trading platform.
Binary options trading platforms offer an average of 90% returns. However, you should scrutinize them extensively. The Securities and Exchange Commission or SEC regulates all the legitimate trading platforms. But the right platform and some training/education there are endless possibilities with the revenue you can generate. However, you do need to first master it in order to have the confidence to make larger plays! After all, building wealth requires skills.
Learn More About Binary Options
If you are eager to pursue a binary options trading career then check out this book at Amazon. The title is “How to Trade Binary Options Successfully: A Complete Guide to Binary Options Trading” and the author is Meir Liraz.