With binary options forecasts will be created about how certain underlying values might develop. These could be shares, commodities or certain indices whose value movements within a predefined period are subject to speculation. As always with options, there is no acquisition of the underlying assets. Instead the binary option tracks the development of their prices with a fraction of the financial commitment, but with great leverage.
Advantages of binary options
While the trader’s risk is limited to his investment, which can be very small, there are prospective exorbitant gains of between 70 to almost 90 percent, in special cases during weekend trades of over 400 percent. In the event of loss the binary option expires; some brokers will return about 15 percent of the commitment and in turn pay somewhat smaller gains, meaning at the lower end of the normal range of 70 to 90 percent. One should comprehensively explore different strategies.
This win-loss ratio is not the only advantage of binary options; furthermore they can be traded quickly and easily. Mobile trading via smartphone works best with binary options and is experiencing massive growth with this trading tool. Another advantage lies in the very simple scenarios that are realized with binary or digital options. The term “binary” or “digital” refers to the two possibilities that may occur:
- Either the expected event occurs (and the trader wins)
- or the event does not occur.
This has been around in classic option trading for some time, since 2008 binary options are now available to private investors, with brokers contributing uncomplicated desktop interfaces (usually without the need for software downloads), charge free trading and apps for mobile devices. Here is an overview of the most important types of trade.
Trading with binary options
Within classic option trading these options are called FRO for Fixed Return Options, because a predetermined amount is returned to the investor. In this they differ fundamentally from other derivatives whose returns or losses depend on stop loss limits set by the trader. Moreover the terms of binary options are preset for relatively short periods that rarely exceed one month. Some options are traded within the 60 second range, trading over 24 hour periods is also very common and offers a good fit for many binary options. Thus binary options also differ in their terms from other derivatives, which usually run over much longer periods. A third, term related, difference lies in the price stability of binary options. Classic option warrants are in principle subject to time value depreciation, in addition their prices depend on further market factors such as volatility. Thus it is very complicated to calculate the option warrant price, which is why the effects of these key indicators (the so called “greeks”) were eliminated for binary options, which were fitted with very simple pricing structures. For the trader that results in a predetermined amount of profit in case of occurrence of the event or the loss of the option down to the possible residual value. It is hardly possible to make trading more simple, which in turn opens up many further possibilities of trading. For in classic derivatives, even the relatively (not absolutely!) stable priced CFDs and knockout options, every trader will set and adjust a stop loss limit, there is definitely no way around this.
Binary options can do away with this tool since they are concerned merely with the occurrence of the event within the term period. Therefore one can speculate with low investments on many more issues, something not possible for a private trader in classic derivatives unless he is a dedicated full time trader. Because of stop loss limits with classic derivatives, risk management requires constant monitoring of market movements. Here is an introduction to trading with binary options.
As we have seen, administration of binary options proceeds very efficiently and can demonstrably be managed from mobile terminals such as iPhone or Android smartphones as well. That too would be very difficult to carry out with classic derivatives. Trading of binary options often takes place (off-exchange) over the counter (OTC); depending on the broker there are between 50 and 100 so called underlyings available. The important indices such as Dax, TecDax, Dow Jones and S&P 500 are included, as are the most important commodities such as gold, silver, crude oil and copper, many currency pairings and very many specific shares mostly from the pool of blue chips. Currently there are globally about 100 brokerages for binary options. Here we shall explain how to proceed with the selection of the most suitable provider.
Those who want to get involved with trading much more deeply should also direct their attention to Forex (Foreign Exchange Trading = currency trading). Forex and CFD trading are not a primary concern on this portal as in a way they represent their own domain. However the transitions between trading in currencies and CFDs and in shares, commodities & indices are fluid with binary options. For one we also have explored a selected number of Forex brokers: moreover advice areas such as charting techniques, or further fundamentals like the significance of particular economic indicators, of course lend themselves to be used as knowledge basics in Forex trading.
Back to the options: we have expended the effort to test and compare all important and mostly english language based available brokerages for binary options on our portal. Here everybody should find comprehensive information. Much fun and lots of success with your trading. If you are searching for a german info site on options, please visit digitaloptionen.com - best wishing and lots of trading success...
Your OptionMaxx.com Team