Binary Options Basics

A binary option, also known as a digital option or an all-or-nothing option, is a financial instrument where the trader has two positions to decide between: will the value of an asset go up or will it go down over a set period of time? Depending on whether the trader is correct or not, the payout is a predetermined price or nothing.

For example, if a trader assumes a position that the value of gold will increase in a given period of time, and is correct, he/she wins a fixed payout. If the value of gold drops however, the trader loses the entire amount of the investment. It does not matter if the asset exceeds the original price, the strike price, by $1 or $100: the payout is the same.

The Reversal

This is based on the concept that if the value of an asset moves in one direction, it is unlikely to remain there and may start to move back towards its original position. As a result, an investor may sometimes choose to buy a Call option if the price has just fallen, or a Put option if the price has just risen.

The Straddle

This involves buying both a Call and Put option on the same asset at its low and high points, in effect straddling the two extremes. It is best used in volatile markets. An expiry level in between the two strike prices is ideal, and means that the investor is doubly successful, but if this does not happen, then losses are minimal because one option expires in the money.

The Knock-on Effect

In our CEO’s opinion, this is the most logical of all strategies. The idea is that the price of a stock may affect the price of the index in which it is traded, or a related stock or commodity. The key here is to understand the connections between assets and anticipate knock-on movements.

Know the underlying asset

Binary options derive their financial value from underlying assets. Prior to investing in a binary option, make sure you understand the asset, and are familiar with the relevant financial markets. Where possible, we recommend that you trade assets which you have existing knowledge of.

Diversify

The more you invest, the greater the potential profit and the potential loss. An intelligent investor understands this, and so often adopts a diverse trading strategy to minimise overall risk and maximise overall reward, trading multiple assets at once rather than larger sums on a particular asset.

Interpret the market

There are multiple ways to analyse the markets and statistics you can access to follow economic trends. Banc De Binary also provides daily market updates and radio analysis to help you make informed decisions, and personal brokers will give you trading signals and advice to meet your individual trading needs.

Banc De Binary offers 5 different, secure, innovative and award-winning platforms so that you can choose the one that meets your trading needs.

1. Digital Option Pro - This is the standard platform, easily accessible for new and experienced traders alike.
2. Long Term - With an ever-growing contingent of educated and experienced binary traders, longer expiration are increasingly coming into favor. Now you can place long term binary trades that capitalize on your wider view of the global markets.
3. One Touch Platform - This offers up to 500% payout if the asset value touches a set figure, rather than simply moving upwards or downwards.
4. 60 Seconds - This is the quickest way to trade online, offering quick results and rewards.
5. Pairs - Mastered trading on all of our other mini-platforms? In the market for a new challenge? Our pair options give traders the opportunity to pit two assets against each other and forecast how they will perform.

For more details on the different trading platforms, please click here.

Banc De Binary offers over 90 assets to trade on from 30 different countries: the largest range of assets offered by any binary options broker. These include stocks, currencies, commodities, and indices.

• Stock trading

A stock is a share in the ownership of a company, representing a claim on the company’s assets and earnings. It is in essence a contract between a buyer and a seller that gives the buyer the right to buy or to sell a particular asset. Typically shareholders stand to earn a lot if a company is successful, but they also risk losing their entire investment if the company performs poorly. It is for this reason that binary option trading, with its known and predefined risks, is becoming increasingly popular among traditional stock traders.

• Currency trading

The Foreign Exchange Market, established in 1971 and commonly referred as Forex, is where banks and investors exchange currencies. It is the largest financial market in the world, trading up to $2 trillion in one day, and is open 24 hours so that investors can respond to currency fluctuations caused by economic, social and political events at the exact time they occur.

Currencies are always traded in pairs. The second currency, the quote, refers to the amount of that currency which can be purchased with one unit of the first currency, the base. One currency is assumed to go up against another or vice versa. For example, a trader may assume the position that the U.S. Dollar will gain in value against the Yen, either because the dollar is going up or the yen is going down or both. The major currencies are the USD, the Euro, the Japanese Yen, the British Pound and the Swiss Franc. The Canadian Dollar and the Australian Dollar are also traded on the Forex market but do not count as major currencies due to their insufficient volume and can only be traded against the US Dollar.

• Commodities trading

Commodities are physical goods like corn, soybeans, gold, crude oil, etc. Trading commodities is relatively accessible because the general direction of price movements in commodities like oil and gold is very much affected by geopolitical events, which are easy to follow in today’s 24/7 information environment.

In traditional style investing, it is also possible to trade futures, standardized contracts among buyers and sellers of commodities that specify the amount of a commodity, grade/quality and delivery location. Such trading takes place at a futures exchange like the famous Chicago Board of Trade. Traders are not required to hold a futures contract for the duration of the contract, and so are able to make profits by buying futures low and selling them high.

• Indices trading

In index options trading, the investor has to predict the overall direction of an underlying market, whether it will go up or go down from a base point. The most famous indices are S&P 500 Index (SPX), Dow Jones Industrial Average Index (DJX) and Nasdaq-100 Index (NDX). The underlying asset of these index options is not a single asset but a group of assets. Index option trading therefore allows traders greater diversification, and so greater stability, than when investing in a single underlying asset. The effects on indices of unexpected news and global events are limited when compared with the effects on individual stocks.

Trading itself is simple. Once you’ve opened your account, go to the trading platform. Select the asset you wish to trade, the expiry time, whether the value will go up (Call option) or down (Put option), and then enter the amount you wish to invest. You are in control of your investment at every stage. At the expiry time, the set payout will be automatically added to your account if you traded successfully, or the investment amount deducted if not.

For a more detailed breakdown, please click here.

The attractiveness of fixed risks and rewards has led to binary option trading enjoying an explosion in popularity. The inherent simplicity of having just two possible options and two possible outcomes for every trade is far from the volatility and complex factors associated with traditional investments. Investors are able to make informed trades and wiser financial decisions.

Binary option trading typically has a shorter term than traditional investing, sometimes as quick as just 60 seconds, allowing for repeated trades and successes. Furthermore it enables investors to take advantage of both bull (upwards) and bear (downwards) market trends.