Chapter 1. What are Binary Options?
Known by various other names such as “Digital Options” or “All or Nothing Options”, binary options trading is a new alternative way of investing in options. It had gained tremendous popularity during the last few years. Its popularity is largely due to the fact that binary options are very simple to trade with. Unlike traditional options, traders of binary options only need to predict the direction of the option’s underlying asset price in order to profit from their investment. Furthermore, the returns of binary options are predetermined allowing traders to quantify their investment risk.
Binary options were a recent introduction in the financial markets. It made its debut into the mainstream financial world in when the Options Clearing Corporation proposed to the SEC to allow binary options to be traded in the mainstream markets. Hence, following a rule change, the American stock exchange and CBOE began to publicly offer binary options to the markets in 2008. Initially, binary options trading were just limited to contracts on the S&P 500 and CBOE Volatility Index. However as the market matured, more and more binary options contracts were offered to be traded covering a diverse range of underlying assets.
Because of the unique characteristics of binary options, they represent an excellent way to invest in the complex and confusing financial markets. As there is only two possible outcomes for binary options, in-the-money or out-of-the-money, traders don’t have to worry about the unlimited risk factor that they faced trading with traditional options.
Returns are known beforehand and there is a wide choice of assets available for the trader’s investment consideration. And because binary options contracts cover the four (4) main financial markets, trading is available 24/6. In the event of a trade being unsuccessful, some binary option brokers also offer a refund up to 15% of invested capital to traders.
With high payouts, easy access to the markets and the availability of trading regardless of the time of day, it is no wonder that the binary option market is attracting so many “greenhorns” to invest in the financial markets.
When to Trade Binary Options
Despite claims to the contrary by same unscrupulous brokers, you should only start trading in binary options once you have grasp the basics of fundamental and technical analysis. You also have to ensure that you have sufficient prior planning before jumping into the water.
As binary options are quick expiring options, this usually leaves you very little time to contemplate on the best time to enter the market. Nevertheless, there are some strategies that you can follow to assist you in deciding when the best times to trade in a binary option are:
- Trade Based On Important Economic News
- Trade When The Major Markets Are Opened
- Trade According To The Trend
With the technological advancement in the World Wide Web in recent years, it is now relatively simple for you to start trading in binary options.
- The first thing that you need to do is to find a reliable binary option broker and open a trading account.
- After opening a trading account, select an asset that is creating excitement in the market. (This should be based on the techniques that we will discuss later in this guide.)
- Once you have decided on what asset to trade in, select the time-frame that you want to trade in.
- Decide on the amount that you want to invest in.
Once you have gone through the above steps, just sit back and wait to see if your trade expires in-the-money or if you made a loss.