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Basics of binary Options
Last modified: 22nd May 2020
Your capital may be at risk. This material is not investment advice.
Binary options are a different form of trading option which is done by predicting the fluctuations of the trade price in a number of global markets. To start with Binary Options, the trader must be aware of the risks and rewards of this kind of online trading. Trading in Binary Options has a different payout process, fees structure and the most important of all, various risks. This form of the trading option also has a different cash flow structure and an investment process when compared to traditional trading.
While trading, people run the risk of speculating or hedging. To them, binary Options act as an alternative. But here in binary Options, the trader also goes through the risk of speculating or hedging and so it should only be practised by those who understand the risks and the subsequent outcomes.
The basics of a binary option
Binary Options fall among the exotic options of trading. It is so because the binary option is very easy to use and functionally, easy to understand. It is also regarded as a fixed-return option because the option has an expiry time or date. The most common is the ‘high-low’ option that provides access to indices, foreign exchanges, stocks, and commodities. The work of the trader is only to predict the market direction and its price within the given time of expiry. If the prediction is correct, the trader will be paid a fixed return. And if the trader fails to predict, he loses the investment.
The main technique of binary Options
The binary option is all about the prediction of the direction of market price. By market, it includes the entire global market.
If the trader believes that the price of a certain market may rise, he would purchase a call. On the other way, if he predicts the fall of that certain market price, he would buy a put.
When the trader is opting to buy a call, it should be noted that the price must be more than the strike price during or at the time of expiry.
On the other hand, if he opts for put, the price should be lower than the strike price during or at the time of expiry.
Strategies to follow while doing the binary trading
When you are using the binary Options, your risk only gets limited within the amount that you have earned or invested for trading. When you fail to predict, you only lose the traded value. Depending on the specific broker’s option, you may even lose only a certain percentage instead of the whole amount.
Before starting with this form of trading, make time to understand the candlestick chart pattern for trading. It will help you to judge the various market prices and the direction they may take. Try Technical analysis indicators as well, it could be helpful to some extent.