How to Trade Binary Options
Options trading tends to confuse many people, especially people who are new to investing and trading. While you will find complex formulas involved with options trading, almost all of that stuff occurs behind the scenes and the person doing the trading doesn't really need to know any of it. The theory is that, options are very simple: they're basically a bet that, at the time of a certain time in the long run, the price of a stock will be above or below a specified price (known as the strike price).
How to Trade Binary Options
So people make an effort to profit from buying and selling options in much the same way that they try to make money from buying and selling stock, with assorted strategies based on if they think price will go up or down in the future.
A few of the complicated formulas come up when pricing options. The cost of an option will change constantly since the price of the underlying stock changes, then there is also something called "time premium" constructed into the value of an option. What this basically means may be the longer an option has until expiration, the greater extra price is added into its price. When you think about it this makes sense, as an option with an expiration date far to the future has additional time available for the price of the underlying stock to move across the option's strike price. Quite simply, an option expiring in 5 minutes has only 5 minutes remaining for price to move above its strike price (if it hasn't already), but a choice expiring in 5 days includes a much greater possibility of that happening.
Binary choices are a specific type of option that pay "all or nothing" depending on the price of the underlying stock at expiration.
There are a few reasons why a trader may decide to consider binary options, for example:
Simplified profitability - in the event the stock price is over the strike price at expiration, you get paid. If not, you don't. No crazy formulas to keep track of.
Limited risk - every possible outcome is known beforehand, so there aren't any possible surprises to end up owing people additional money than you initially invested (something happens from time to time with option trading, and something of the reasons why people have a tendency to think "options can be dangerous."
Availability - as binary options continue be popular, there are more and more brokers who are providing them to traders.
How to Trade Binary Options
Always read the terms of your broker before beginning to trade.
How to Trade Binary Options
So people make an effort to profit from buying and selling options in much the same way that they try to make money from buying and selling stock, with assorted strategies based on if they think price will go up or down in the future.
A few of the complicated formulas come up when pricing options. The cost of an option will change constantly since the price of the underlying stock changes, then there is also something called "time premium" constructed into the value of an option. What this basically means may be the longer an option has until expiration, the greater extra price is added into its price. When you think about it this makes sense, as an option with an expiration date far to the future has additional time available for the price of the underlying stock to move across the option's strike price. Quite simply, an option expiring in 5 minutes has only 5 minutes remaining for price to move above its strike price (if it hasn't already), but a choice expiring in 5 days includes a much greater possibility of that happening.
Binary choices are a specific type of option that pay "all or nothing" depending on the price of the underlying stock at expiration.
There are a few reasons why a trader may decide to consider binary options, for example:
Simplified profitability - in the event the stock price is over the strike price at expiration, you get paid. If not, you don't. No crazy formulas to keep track of.
Limited risk - every possible outcome is known beforehand, so there aren't any possible surprises to end up owing people additional money than you initially invested (something happens from time to time with option trading, and something of the reasons why people have a tendency to think "options can be dangerous."
Availability - as binary options continue be popular, there are more and more brokers who are providing them to traders.
How to Trade Binary Options
Always read the terms of your broker before beginning to trade.