Binary Options Trading – Definition
What is Binary Options trading?
Binary options are a relatively new type of financial trading that has quickly become popular among investors. What distinguishes a binary option from other types of investment is that binary options traders are not investing in an asset, but rather through forecasting the direction the value of the asset will move. In other words, a binary option is a contract that allows investors to purchase an underlying asset within a stated time period at a fixed price.
While trading Binary Options, the trader forecasts whether the price of an underlying asset (EURUSD or GOLD) would go up or down after 1 minute (or 5 minutes or 1 hour) from the present price and invests a fixed amount. After the lapse of 1 minute, if the trader’s forecast is correct, his trade is considered successful and he receives up to 95% return on his invested amount. If his forecast is wrong he loses his invested amount.
Binary Option gives those who do not have much previous experience in financial instruments trading or those who do not have big amounts of capital to invest an accessible method to earn extra income. By trading Options, you can benefit from potential significant profits, while taking advantage of both a minimal investment as well as short investment periods.
Advantages of Binary Options over Forex trading
Take a look below to see why many traders are choosing Binary Options instead of Forex trading.
To get started in Binary Options a small starting capital of $10 is required with some brokers. A deposit of $100 is fair enough to start trading Binary Options. In Binary Options trading you can invest as low $1 per trade while the maximum can up to $5000 or more. Forex trading is not as flexible, depending on the broker a minimum investment is $100 or more per currency pair.
Transparency in Binary Options
Binary options trading offers more transparent trading conditions. You know in advance what your loss will be if the trade goes unsuccessful. You will know what your payout will be if your trade expires in your favor. In forex trading, you never know these potential losses or profits in advance.
In Binary Options trading you know the risks involved in advance in terms of maximum loss and profit involved. Binary options have better risk manageability compared to Forex since traders receive a fixed payout structure. On the flip side, in Forex trading risk management can be extremely difficult and requires more knowledge and understanding.
Each Binary trades expire with specific timelines called expiry, which may be as low as 30 seconds and as much as months. It’s you who select expiry time in Binary options trading while placing the trade. Forex trading allows traders to execute trades lasting from one second to many months.
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