What are Binary Options?
Binary Options. Simple. Quick. Profitable.
Binary Options, also known as Digital Options, all-or-nothing options or Fixed Return Options (FROs), have been available since 2008. They are simple for any trader – novice or expert – to understand.
A Binary Option is in essence nothing more than a prediction on which way the price of a stock, commodity, index or foreign currency will move by a designated expiration time. With Binary Options, you never purchase or own the asset. You are only predicting the direction that the asset will go. There are only two possible outcomes, the price of the asset does not matter. As far as you are concerned, all that matters is whether or not you made the right prediction.
Through the FMTrader platform, you simply:
1. Select the asset you want to trade.
2. Click on ‘CALL’ if you believe the asset price will rise by the expiry time, or ‘PUT’ if you believe that the price will fall.
3. Wait for the outcome.
4. Collect your profit.
Binary Options in Global Financial Markets
Binary options fall under the umbrella of exotic options but in the financial markets they are often referred to as digital options. While digital options are very simple to understand and trade, the calculations behind the pricing is sophisticated, and so they are considered exotic options.
Digital options are usually traded OTC (over the counter) across all assets in financial markets. They are more commonly used within the Forex and Interest markets. Recently numerous stock exchanges have produced listed digital options on selected stocks, commonly known as FRO (fixed return options). Today the CBOE offers fixed return options on S&P 500 and VIX. In addition, 20 stocks were listed on the AMEX in 2008.
Advantages of Trading Binary Options
Controlled Risk– The percentage reward is known from the onset, as is what you stand to lose.
Simplicity- You only need a sense of direction i.e. ‘Will Google stock price increase/decrease by expiry?’
Attractiveness- For a profitable trade to take place there is only the need for the price to close ‘in-the-money’. The winning trade will receive the entire payoff, even if it was ‘correct’ by a single pip.
Hedging opportunities– A safer option to take if a trader has an open position elsewhere in currency, stocks etc. Utilising a binary option can eliminate a further loss elsewhere.
Punctuality– Binary contracts are being issued around the clock, allowing traders to trade on multiple time frames. There is always an expiration time arriving, which constantly yields new opportunities for binary traders.
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