If binary options trading has seemed like a foreign language to you, your help has come. Fundamentals of binary options have been unpacked for you in this article and as you’re about to discover, trading binary options could actually be easier than many other trades you may have tried.
Binary options trades are straightforward
Binary options trading presents you with two choices or options that have been simplified as CALL and PUT.
CALL option means the trader is predicting the price of the underlying asset to rise. On the other hand, PUT option means the trader is predicting the price of the underlying asset to fall.
In binary options, the outcomes are clear: the price will rise or fall, no middle ground.
If the underlying asset is currency pair such as EURUSD, binary options trading allows you to profit from predicting whether the currency pair will rise or fall within a certain period.
You can trade a wide variety of assets in binary options. Other than currencies, you can predict the price movement of commodities like gold, silver or copper. You can also predict and profit from price movements of indices like the Dow Jones, the S&P 500 and the U.S. Dollar Index (DXY).
Regardless of the assets you’re trading, the concept remains the same: choose CALL if you foresee a price appreciation of the underlying asset by the time your option expires. Choose PUT if you see a price depreciation ahead.
Binary options payouts can be generous
Different brokers have different payouts rates for winning options, but most firms have payout rates in the range of 70% to 91%. That simply means that if you purchase an option for $100 and correctly predicted that Apple (AAPL) stock will rise above $120 after three minutes, a 70% payout rate will earn you a profit of $70. Similarly, a 91% payout rate will earn you a profit of $91 on your investment. As such, after the trade you should walk away with $170 if your payout rate is 70% or walk away with $191 if your payout rate is 91%.
Stay in the familiar territories
Binary options experts recommend investing in assets you understand. If you are familiar with gold trading, for instance, it would be great if you narrowed your options investing to gold.
Focusing on assets you understand well makes it easier to predict their price movements accurately. For instance, an investor who has been tracking gold trades would know that gold prices tend to rise in a bearish market because gold is considered by many investors to be a safe-haven asset. As such, while stocks and bonds might be plunging, investors would be accumulating gold to weather the bearish market storm. Such insight can come handy when trading options because you will know when to place a CALL or PUT option on gold.
Another investor may be familiar with currencies and may know that the dollar will rise when the market is anticipating a hike in interest rates.
Not only is it great to invest in assets you understand, but it is also recommended that you select a few assets at a time to invest in.