Important Information Concerning Binary Options

| May 13, 2014 | 0 Comments

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You may not quite be clear on what exactly binary options are. To put it simply, binary options allow you to trade in different global markets simultaneously. Since this type of trading isn’t commonly well understood, it’s important to study and learn as much as possible since it carries risk, just like all other trading. There are different types of fees, varied payout options, risks that are unique to the binary market, as well as liquidity and investment processes that are unlike other options.

Binary options are available both within the United States and in other territories and markets. All are structured differently. Whether you are considering hedging or whether you are more interested in speculating, it is vital that you thoroughly understands the risks associated with both so called “exotic” trading options. In fact, in June of 2013, the SEC warned investors about risks involved with binary investments and a company based in Cyprus was charged with illegally selling to U.S. based investors.

Binary Options Explained

Although classified in the “exotic” category, binary options are pretty simple. High and Low options are the most popular an the return is called a fixed return option. The term ‘fixed’ refers to the expiration date and time associate with the particular binary option and it’s strike price.

When the trader accurately gauges not only the price, but also the direction that the market is headed and is within the expiration date, the trader earns profit, and it doesn’t matter how much the option moved. An inaccurate call of direction, on the other hand, results in a loss.

A trader makes a ‘call’ when they predict a market rise, and they make a ‘put’ if they think that the market will fall. In order to make a profit when the trader makes a “call,” the market must be more than the strike price when it expires and the opposite is true when the trader makes a “put.” Before the trade is official, all specific details are disclosed to the trader, the expiry, as well as the risk, payout and the strike price.

When dealing with high-low options not traded in the U.S, the current price is generally the strike price. So to put it simply, a trader is making his or her best estimation of whether the binary option will go up or go down, when compared with the current price.

In addition to trading binary options, you can consider trading forex with Avatrade.

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Category: Investment

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