Binary options guide – A summary of the basics and ground rules of the trade
Various binary options guides are offered online by numerous trading organizations all serving the singular objective of helping a beginner learn the basics of binary options trade and to keep the traders updated about any new innovation/addition to the trading arena. The binary options guide below consists of certain key terms and basic ground rules that would help a beginner understand the mechanics of trading in binary options.
- Outcome is binary in nature: Any trade involving binary options has only two possible outcomes, the traders gains a fixed percentage of profit (in-the-money) or and gains nothing (out of-the-money).
- There are two betting options: Based on the whether the cost of the underlying asset will increase or decrease; the trader has the choice of two options ‘call’ or ‘put’
- ‘Trigger’ and ‘Time’ are two important variables: The call option bets on the probability of the cost to rise above an arbitrary value called the ‘strike price/Trigger’ where as the put options place its bets on the reverse outcome. The time frame for the outcome i.e.; ‘expiry time’ is fixed in the beginning of the trade.
- Fixed return contract: A trader needs to buy a contract on either call or put based on his calculations by paying a certain investment called ‘premium’ and the contract states the percentage of return expected on success and the expiry time.
- The risk involved and profit to be gained is clear-cut: say a trader invests 200$ premium on the call/put option of stocks of an asset with in a time frame of 1 hour with 70% return, then he stands to gain
a) 340$ if the stock is in-the-money. b) Nothing if the stock is out-the-money (initial investment lost). c) Depending on his relationship with the broker, he may be given 10-15% return even if the trade fails, in which case the loss isn’t 100%.
- High yields in short time: due to the short turnaround times small-time investors can earn huge returns by trading consistently. However the trader needs to have clear-cut knowhow on the Asset’s price, the direction the price will take and the expiry time before making an investment.
These useful tips listed in the binary options guides will help you navigate through the trading system with relative ease.