So what exactly are Binary Options?
Everyone knows the vast fortunes that can be made when trading financial instruments (Stocks, Currencies, etc.)
Stories and living testimonies abound of traders who started their careers penniless and within a few short years, took early retirement having amassed a multimillion-dollar fortune.
And until the last few decades, nearly all these traders were employees of various Banks or Private Corporations, who were given a fund containing thousands to trade with.
Fortunately, all that has now changed.
Thanks to the internet, the barriers of entry with regards to trading financial instruments has now become readily accessible to the average Joe.
Now everybody in theory has the potential to create their own rags-to-riches stories, all thanks to the ability to now do online trading.
Unfortunately for most people, buying and selling shares is as far as their knowledge extends with regards to trading.
I say unfortunately, for the process of buying a share in your name, only to sell it back later in the hope that it has increased in value, is one of the slowest ways to amass a fortune.
Whilst there are very rare exceptions, where the price of a share increases 10-50 times what you paid for it by the time you come to sell, such opportunities literally come about once in a life time (besides which the fees you pay your broker for doing this transaction can eat into your profit).
Whilst there are other types of trading which could bring you far greater returns than mere online trading (such as trading Forex, Futures or Options) these are generally far more complicated forms of trading.
And as such, anybody wishing to trade these financial instruments will need in-depth understanding of how the financial world works.
Yet in recent years a new type of trading has begun to emerge: Binary Options!
So what are Binary Options? Binary Options are a sort of a hybrid, in that not only are they very simple to understand, but one can make far higher returns compared to if one were to just try online stock trading!
How much higher I hear you ask?
Well with some trades regularly returning 190% of what you put in only a few minutes/hours ago, Binary Options are taking the financial world by storm!
What Are Binary Options?
Binary Options are a fixed-odd way of trading, in that before you even place your trade, you should already know how much you could make as well as how much you could lose.
Instead a Binary Option can be viewed as a contract, whereupon within this contract you will stake a certain amount of money on a specific outcome of a certain underlying asset (be it a stock, currency, etc.) increasing or decreasing in value, over a certain period of time!
As you may well be aware, during the times when the markets are open, the value of all the underlying assets are either increasing or decreasing in price.
So, say it is 12pm GMT on a Wednesday (unless there is some national holiday taking place like Christmas Day) than the LSE (London Stock Exchange) would be open, and all the shares of UK companies, etc. listed in this market would be increasing or decreasing in price.
So when trading Via Binary Options, if it is 12pm GMT (no matter what time zone you are in) you can log into your Binary Options Brokers account and place a trade on whatever UK stock is on offer.
When placing your trade however, you will be given a choice of how long you wish your Binary Options trade to last.
Most platforms will give you a time range anywhere from 1 minute to however long there is left till the market closes.
So, let’s say you picked the stock of a UK company (i.e. Tesco’s Superstores) and you selected a timeframe of your Binary Option to end in 2 hours’ time.
Next you will need to mention from the outset how much money you wish to stake, many platforms will allow micro-stakes ($5 or less) up to anything like $10,000.
Binary.com, the trusted platform which I use has allowed me to stake as little as $1 per trade in the past.
On imputing how much you wish to deposit on your trade, you should automatically be informed in advance how much you will make if you are right.
So, with regards to my hypothetical Tesco’s Share Price Binary Option, if I decide to stake $10, I will at the very least be told how much I can expect to make if my prediction is correct, say $17 ($10 my initial stake plus $7 extra).
I can safely assume that if my prediction is incorrect, I will simply lose the $10 I initially staked and nothing more.
Finally, I will need to declare whether the share price will end up higher or lower once the 2 hours is finally up.
It should be mentioned that on many Binary Options Brokers platforms, you will often be given two different prices indicating how much you’d win, depending in which direction you believe the share price is going to end.
So if you deposit $10 and you believe the price will end up lower after 2 hours, you may be offered $17, yet if you bet the other way, you will be offered a return of $15.
The reason for this is quite simple.
If up until the moment you are about to place your trade, Tesco’s share price has been rapidly increasing (or decreasing) in price and the trend doesn’t look set to stop anytime soon, the Binary Options platform will often give you a lower return if you set your prediction in that direction.
However, if you cleverly (or foolishly) decide to bet against the trend, you will often be offered a far higher return if you are correct, as per the Binary Options brokers, you are essentially betting against the trend and so less likely to win.
Once you click on the button (computer icon on the screen) stating which way you predict the Binary Option to go, your Binary Option’s trade will immediately start.
Once started, your trade will be locked in and there is nothing else which you need to do but wait to see how your trade ends up.
When your Binary Option comes to its natural end, if the price of the underlying asset i.e. like on our Tesco’s share, has gone in the direction you thought it would, even by a single point, then you’d win the full amount you were expected to.
Subsequently if the price ends up exactly where it started (very rare) or even a single point in other direction, then unfortunately you lose!
If you are wondering what a single point is, this is just technical terms for the smallest amount a trade can move in, and is usually measured in fractions of a penny, cent, etc.
QUICK NOTE FOR NEWBIES
On placing your first trade, if you initially forecasted the price of your underlying asset to go one way (up or down, aka increase or decrease in value) don’t fret if during the trade, it goes in the other direction and beyond the price which you opened the trade at.
For what ultimately matters is not what price the stock, etc. reaches during the trade but the actual price of it is the moment the Binary Options contract expires.
I can imagine that for many of you reading this, Binary Options may seem a lot like gambling which maybe some of you frown upon.
Whilst I won’t lie by not telling you that there can be a gambling aspect to it, the same can be said for all types of trading as you never know in advance the outcome of your trade.
Yet if you remember to approach the trading of Binary Options in a cool, unemotional mindset, as well as having done your research in advance, then you stand the best chance of making a profit.
Just a legal clause, just as it is possible to make a profit it is also possible to make a loss when undertaking any forms of trading so please don’t risk more money than you can afford to lose.
The platform which I use, Binary.com have recently installed a cool facility where at pre-set times, you are reminded that it is time to stop trading and go take a break.
This is something which I personally wish more Binary Options trading brokers would implement!
If you are ready, let us now go on to the next page, The Difference Between Technical & Fundamental Analysis