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Binary options

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What are binary options?

Binary options, also known as digital options, have lately become one of the most popular trading tools. Each option is linked to a certain asset, i.e. a share, an index, a currency pair, or a primary product price. The profit or loss of each option is determined by the fluctuations of the price of the asset tied to it. Binary options have a pre-determined lifespan, which can be as long as an hour, 15 minutes, or even just 60 seconds after the time of purchase. The difference in price of the asset between the time of entry and exit will then determine whether the deal is successful or not.

70-95% profit on deals

Binary options can offer some of the highest returns per deal among existing financial instruments. High profitability means that even just one successful trade can help you significantly increase your initial investment. This also helps protect your capital. The higher the profitability of each single trade, the more chances one has to make a profit on a series of trades. One should, however, bear in mind that deal profitability is proportionate to the risk level. This means that all other things being equal, an option contract with relatively lower profitability will also mean a higher likelihood of profitable movement of the underlying asset.

Income on both growing and falling markets

Binary options are known to be a very flexible financial instrument, as they allow one to make a profit from both the increase and the decrease of prices of the underlying asset. The direction of the option is selected in advance – at the same time as one is entering the trade. Options on the decrease of the price on the underlying asset (so-called “short options”) will allow you to make a profit on the so called “bear market”, i.e. when the prices are falling, which speaks in favour of binary options when compared with the traditional trading tools (such as shares, for instance). Consequently, when combining binary options on both decreases and increases of the underlying asset prices, one can expect a much more stable status of one’s trading account no matter what the market situation is.

24/7 trading opportunities

Alongside currency markets, binary options also provide 24/7 trading opportunities, thus expanding the range of potentially favourable market conditions for a trader to make use of. This also means that option trading can be easily combined with full-time work and other affairs, helping one get additional income and, thus, stabilising one’s financial independence. It is important to note, though, that 24/7 trading opportunities are only there for such underlying assets that are available for trade non-stop, i.e. currency pairs and commodity contracts.

Low minimal deposits (starting from $1)

Binary options allow you to practise your trading skills with very small amounts of seed money – a number of binary option brokers will allow a minimum deposit of $5 and even $1. This is especially good for those who are new to trading and would like to avoid risking large sums of money while acquiring the basic trading skills. Once you have completed your initial training and feel more confident, you can then approach a broker that offers more professional trading instruments, but at the same time, also requires higher deposits.

Possible loss and profits are fixed in advance

One of the main benefits of binary options is that the possible profits and losses of each trade are known in advance, which allows for better and more precise risk management when trading. This, consequently, makes money management (control over one’s account status in the active trading of financial instruments) significantly simpler. In other words, access to precise information concerning the two possible outcomes before you actually enter the market position will allow you to better select the optimal sum that you are willing to invest into each trade.

No floating spreads or hidden fees

Binary options have one more specific feature: full transparency of pricing with each separate trade. This means that when trading one does not need to track the ever changing spreads, (the difference between the purchase price – ask, and the sale price – bid) and as a result, can focus on the more important things, such as estimating the price movements of the underlying asset. The main source of income of binary option brokers lies within the difference between the estimated loss and estimated profit. As mentioned before, this information is available to the trader in advance; besides, one will not be required to pay extra commission or hidden transaction fees.

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