subject: There Are Actually Only Two Outcomes When You Invest In A Binary Option [print this page] A binary option is an financial investment vehicle with only two possible outcomes: you'll get paid if the option reaches a certain level or else you don't. It really is that simple. Unlike a typical option, which allows you to purchase or sell an asset at a certain price, this type of investment is like a wager that has to reach a specific price on a certain date. In case the asset reach this price by the strike date, then you will get compensated the money specified by the option contract. If it doesn't, you receive nothing. This type of options trading is typically uncommon, but the rewards are excellent for the ones that do.
Binary option are available in two types: cash-or-nothing and asset-or-nothing. In a cash-or-nothing binary option, an investor receives a fixed cash amount should the asset reaches the strike price. An asset-or-nothing binary option payoff is equal to the asset value price. Once this asset reaches the strike price, it is known as being "in the money."
It's also generally known as an "all-or-nothing" option because you either get the full amount or nothing at all. There are many techniques to use this in the market. Some contracts enable you to purchase assets for just a reduced price. This is an option to enjoying a payout. If you want to sell these, that can be done in a much bigger market rate.
On the subject of binary options trading, you have to be clear in regards to the exact conditions. The terms used are different to some other common financial trading forms. As an illustration, a call option is one that pays if the price is over a certain level at the agreed date. Conversely, a put option only pays if the price is under the level.
As an investor, you'll want to check if the binary option you put money into is European or American. Regardless of the terms, the styles are not restricted to specific markets. In the European style, the price has to be above or below the designated level at the agreed date. In the American style of binary option trading, the payout happens if the price passes the designated level at any point up to and including the agreed date. This makes an American style binary option much more likely to earn income, and will be reflected with the pricing.
If you're planning on going into binary options trading, there are two things to ask. The first is how likely the option will pay out. The second reason is how the pricing of the option will show this. You must remember that prices are not how much you originally invest but instead the connection between the amount paid to obtain the option as well as the amount received in the event it ends up paying out. You can look at this similar to fixed odds in gambling.
One other thing to note, make sure your binary options trading deal covers cash or assets. If it's cash, the payout is actually a monetary fixed amount. In case the deal stands for assets, the payout is always a fixed unit of asset, like a certain quantity of shares. In a European style binary option, this simply means you can find yourself getting much more than what you expect, based on the extent the price surpasses the designated level at the agreed date. Always weigh the advantages and disadvantages of both before deciding what type to settle on.
