Improving Your Profits on Trading Binary Options


Posted June 3, 2016 by joyspriscilla

A binary option, in finance, refers to an option where the payoff is either a specific amount of a particular asset or nothing at all. It is called a binary option because of its binary nature where only two outcomes are possible.
 
To illustrate, if an investor thinks that the price of a traded forex currency pair will rise in the next hour, he can look for an option broker online and choose from the binaries available, and put some money on it, say $100. If, for example, he opts for a 70% return on a currency pair which he thinks will gain in the next hour, he will gain $70 in profits on top of his original placement of $100. However, if the value of the currency pair drops, he will only stand to get 10% of his original investment or less depending on the contract. This type of binary option is called a 'call above' binary.

Another type of options trading in these contracts is known as the hit or miss option. Under this option, individuals or options brokers can specify a time and price range for which the market maker will dictate the cost. For a more detailed explanation on what these type of instruments can do click on Binary Option - this will also give you an insight into how the currency markets function.

The binary option first appeared in trading platforms in 2008 when it was introduced to the Chicago Board of Exchange (CBOE). The same year, it caught on in the North American Derivatives Exchange (NADEX) platforms. Since then, the face of financial markets was never the same again. These contracts became easily accessible and were dealt without too much government regulation (though this is expected to change in the future). The binary option presented a new opportunity for individuals and brokers; and the online platform provided more leeway as they no longer need to physically receive the option contracts to trade, or wait for the trading floor to open.
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Last Updated June 3, 2016