Binary Options

From MarketPunter

Binary options; also known as all-or-nothing options or digital options, are a cross between traditional buy-and-sell options and those of fixed returns. One of the major differences between trading the stock market and trading binaries is that with binary options, you don’t actually own the share, you just bet on the performance of the share price. Unlike a spread bet a binary option does not require a margin, there are no stops and the trader knows the exact maximum risk and maximum profit. Unlike CFD’s these products are still tax-free and will likely to remain tax-free for years to come.

How it works

Imagine you are a trader who is willing to trade options and risk 1 dollar on the idea that Euro/Dollar’s exchange rate will move higher in one hour from now. If your guess is correct, you can anticipate a fixed return on your investment (70% for example). On the contrary, if you are trading a binary forex, binary Euro/Dollar option for example and the option move against your prediction (below the strike price), you will end up losing your initial investment of 1$ and get a zero dollars return, from here the name binary option derived. When trading binary options we only have to ask ourselves two questions. First, what is the current price of the market we are analyzing? Second, do we anticipate price to be higher or lower in a fixed time from now?

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