subject: Facts On Binary Options And Binary Option Trading [print this page] A binary option is a fixed return option because there are only 2 possible outcomes which are fully realized at the start of the contract.A binary option is a contract which provides the client (known as the owner) the right, however, not the obligation, to buy an underlying asset at a fixed price in a specified time frame.The things being traded are called underlying assets and they might be a product range: currencies (e.g. USD/JPY), commodities (e.g. Oil, Gold), stocks (e.g. Microsoft, Coca Cola) or indices (e.g. Nasdaq, FTSE 100). The fixed price where the owner buys or sells at, is termed the strike price.
When trading binary options, the purchaser of the option chooses whether he thinks the underlying asset will hit the strike price by the selected expiry time - this may be at the end of the nearest hour or the end of the day, week or month.A holder places a call option on his binary option trade if he thinks that at the expiry time the option will be over the current price. He places a put option if he thinks that at the expiry time the option will be lower than the present price.
In this way binary option trading is very flexible. The asset, expiry time and predicted asset direction can be controlled by the owner of the investment who can select each as he desires. The only unknown factor is that if the asset will expire higher or lower that it is existing price.The returns from binary option trades are set from the onset of the contract. If the option expires in-the-money after that buyer will receive between 65-71% profit on the investment amount. If an option expires out-of-the-money then with anyoption(TM), the buyer gets a 15% payback on his initial investment. The certainty of binary option trading makes it a preferred technique of trading for a lot of investors since not just is a potential gain known from the offset, but most importantly the potential loss has limitations.
The real difference with trading binary options to traditional trading is that in binary option trading, a purchaser is simply trading on the performance of an asset - they won't actually own the asset itself.
For a binary option trade to be profitable, the option must only move in the predicted direction - the magnitude from the move just isn't relevant hence its easier to receive a payout.Binary option trading is quite flexible, due to multiple expiry times and dates, the range of underlying assets on offer and also the capability to trade online without resorting to a broker
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