What is binary options trading. Binary Options is a form of options trading based on a single question, that a stock, index, commodity, or forex pair end up over the current price or not by a specific timeframe, which we call our expiration.
This is how binary options works
Here’s how it works. Say you wanted to start trading Forex binary options, and you’re looking at, well, the U.S. dollar versus the Japanese yen. You’ve been taking a look at the price and noticed it’s sitting around the 109.191 area, or 191 for short, your analysis is telling you that within the next minute or so, the price is likely to shoot up.
Now, usually, to exchange the value of a currency, you have to travel to the country of whatever currency you’re looking for and physically exchange your dollar for theirs. In this example, we’re buying more of the U.S. dollar in exchange of the Japanese yen.
Technology is our friend
But here’s the cool part about living in a world where technology is literally taking over everything that we do. Now we can exchange our currency rates from anywhere in which we have some access to the internet.
With binary options, there are only two possible outcomes, either the price of your traded asset, in this example, the USD versus the JPY, finishes above a specific entry price at a specific date and time, or it doesn’t.
The trade in binary options
So with that being said, we enter a $25 position at 109.191, with the idea that within the next 60 seconds, the contract price would be above our initial entry point. It does not matter how much above the entry price the market has reached at expiration. As long as it’s higher than our buying position, we went.
So let’s talk about payouts. In this example, our broker is paying out 70% profit margin for the U.S. dollar versus the Japanese yen, making our $25 contract worth $17.50.
Now keep in mind that 70% profit payout is the result of a few variables: how much the prices fluctuate, volatility in the market, and just general market sentiment. So let’s fast forward to the end of our 60 seconds. If our buy analysis came true and the price is above where we thought it would be, then guess what? We just finished in the money.
Benefits of trading binary options
There are many benefits to trading binary options. In my opinion, it’s just a lot simpler to learn than most other styles of trading. You know the risk versus reward before you place the trade. You only need the market to move 1 pip to profit on your trade. The strategies for binary are easy to understand and implement.
Recommended Training Resource
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