Basic Guide to Trading Binary Options
Binary trading, also known as a binary option bet, is simply whether one thinks a price is going higher or lower within a given time frame. It is like sports betting. Who will win or lose? A call option is purchased if the trader thinks the price is going up and a put option is purchased if the trader thinks the price will go down. It is very simple and straight-forward, which is why so many Australians and others around the world are doing it so much, apart from the potential monetary return all from home, all from online.
Traders have defined risks with binary options. The most online traders can lose is the amount they put on the option. Some brokers give rebates on losses, some of which we recommend on OptionsGain. So if they rebate 15% and you wager $100, the most you lose is $85. If you make the correct binary trade online, the payout is defined depending on the broker. Most brokers payout 70-75 percent. So if you wagered $100 correctly, you win $75 if the payout is 75 percent and have $175. The best part is that you can trade options all from the comfort of your living room or office, online or anywhere else in Australia or world for that matter.
3 Types Of Binary Options
There are 3 types of binary options; the High/Low trade or the Up/Down. Quite simply, this is what we talked about above. Will the asset finish higher or lower from the strike price within a given time period. The strike price is the target price the trader selected, and is the traders’ form of reference. Some brokers and trading platforms also call this the Rise/Fall binary option.
The second type of binary trade is the In/Out trade. This trade is also called the tunnel trade and the boundary trade. This type of online trade is for trading consolidations (In) and breakouts (Out). The way this works is the traders identifies the price range using two price targets. The trader then purchases an option if the market will stay (In) the price range or break (Out) of that range.
The third type of binary trade is the Touch/No Touch option. The Touch option is purchased if the trader thinks the price will Touch the targeted price at least Once during the option time frame. Likewise, a trader purchases a No Touch option if they think the market will not touch the targeted price.
There is also the Double Touch and Double No Touch. This is where the trader sets 2 price targets and purchases an option that both targets will be touched (Double Touch) or not (Double No Touch). This is for very volatile markets around the world and/or in Australia.
Each binary option is based on an asset selected by the trader. These are known as underlying assets since the trader never actually owns the asset. These assets can be stocks, commodities, currencies and indices depending on the broker. Each broker offers different assets from which their platforms and online brokers can trade. It is up to the trader to determine which asset(s) preferred and which platform offers the best choices.
Each binary option is a contract with a fixed expiration time. This time can range from minutes to hours to days to weeks. The expiration time is very important because the trader can be right, but it does not happen within the time frame of the option and the trader loses money on what would have otherwise been a profitable trade.
Advantages To Binary Options
The main advantage to trading binary options is that a trader can put the trade on and walk away without worrying about getting stopped out. The risk is fixed and the payout defined. How many times have we been stopped out and then see the market go in our intended direction? It is a sickening feeling; but with binary options, we do not have to worry about that. We place our option bet and let the market play out.
It is also important to understand the binary options traders can make money in rising and falling markets. It does not have to be a one-way bet. Just as much money can be made in bear markets as there are in bull markets; sometime it can be quicker. The old adage is take the steps up in a bull market and the elevator down in a bear market. With this said and done, you might want to take a quick glimpse and learning of the various binary option terminology utilized nowadays, especially if you are thinking of getting involved with trading, you definitely will need to know the vocabulary to get around.