A binary option is a selection that pays either a fixed amount or nothing at all. This depends on whether certain conditions are met when the option finally expires. Options are the simplest trading products. The trader knows exactly what profit they will receive and what they will lose at the time of placing a binary trade.
You can purchase binary contracts on stocks, commodities, indices and currencies. The beauty of a binary option is the high payout potential within a short trading period. As a mass market trading tool, binaries empower traders with flexible trading approaches. There are not complexities involved in trading with binaries. You either lose or you win. Most traders use these options to enhance short term portfolios and to speculate in financial markets during specific time periods.
Binary Options Advantages
· Simplicity is the highest advantage of binary options. The concern is whether the asset closes above or below the trading price. It is very straightforward and the only consideration is the direction of the asset price.
· There is limited risk and the payout is predetermined or determined at the time of trade. The potential risks and rewards are known from the outset of the trade. With traditional trading in commodities and assets there are no distinct parameters. The loss or gain is risky and highly speculative.
· You can simplify your portfolio hedging practices. No matter what a binary option closes at, the option is paid out at the full rate. This is true even if the closing price is minimal.
· You can trade on multiple time frames in the options market. Binaries are positioned in a variety of global markets from different stock exchanges and you are able to trade via the Internet on a 24/7 basis.
Example of Binary Option Trading
Binary trading is speculative depending on the price of shares or commodity. Using Google as an example, the price today is $801.25 per share. You speculate on the price movement with in a specific time frame; often only one hour. If it is your opinion that the Google share price will rise above this current price level, purchase a binary call option. If the price closes above the listed price at closing you are “in the money” and pay out is the monies promised during the trade. If it falls, you are “out of the money.”
Watch the movement over the past few months and weeks of Google or any other stock or commodities you are considering. This will give you an idea of whether or not the price will move up or down. Savvy investors and traders are keenly aware of how prices move; they do not just “guess” but use information and tradition to determine whether or not a binary option will pay out. Trades also watch the rapid movement of a desired commodity. Binary options move fast and the knowledge base concerning a stock, commodity or currency must be quick and to the point. The simplicity and rapid deployment of moneys and information is the beauty of binary options.
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