How does Binary Options Work?
Binary Options, also known as All-or-Nothing Options or Digital Options, have been offered to the public-at-large since 2008. Mostly, Binary Options have two potential results: ‘in the money’- when a particular asset reaches a certain value following the given expiry time and ‘out of the money’- just the opposite result. Trading in Binary Option is a great way in which investors can achieve high returns in a very short period of time.
How does Binary Options work?
I will attempt two different explanations; the first will be better for those who do not actually understand what Binary Options are all about.
With Binary Options, trader uses a broad selection of assets, from Stocks to Forex, Commodities and Indices. These are commonly referred to as underlying assets because the value of the option is evolved from their value, and we WIN or FAIL to benefit from binary trades based on the price movement of these underlying assets. Basically, a trader predicts that the price of a chosen asset will be above or below the current level at expiry time and if his prediction gets right, he will achieve a certain, predetermined profits.
Let’s assume, I predict Apple will be over X value within next one hour (here, X is the current price level of Apple), I will invest my money and hit for ‘Call Option’ (alternatively, hit for ‘Put Option’ – when I predict that the asset price will be below the X value). If the Apple stock is just one point higher than X value when my option expires, I will achieve profits up to 85% profit from the investment (the profits percentage varies from broker to broker). Many brokers offer refunds up to 15% of the investment loss if your prediction gets wrong.
Currently, as the Binary Options market growing fast, brokers offer many more trading options, for example Touch Options, Up/Down, Boundary Options, and the most popular type of fast trading called ‘60 Seconds trading’ where all options expire after 60 seconds or one minute, so you could possibly increase your profits faster than ever. Each category of options is somewhat different from the other options in terms of its features.