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What are Binary Options?


Trading Binary Options -FAQ, Strategies, and Rules

 Binary Options offer a fixed price profit potential

Binary options or digital options are commercial instruments that are traded during an agreed period of time with a pre-fixed return. Binary Options provide only two possible outcomes. Either you're in-the-money or you're out-of-the-money. A trader can profit by just predicting the direction of a price trend. No matter if the price of an asset has moved 10 pips or 50 pips -and either in case of a call option or a put option- the profit potential remains always the same. Every binary option that ends in-the-money offers a fixed payout. Usually binary options offer Payouts 70-80%. Furthermore, binary brokers offer usually a refund 5-15% in case of an out-of-the-money option.  Pair Options

Trading binary options is simpler than standard options as fewer factors affect their pricing. Opposite to standard options, binary options offer specific payouts based on small moves of a financial instrument.

Binary Options Trading Strategies at iBinary.net: Binary Options Strategies

Which are the Underlying Assets?

The underlying assets of the binary options include stocks, indices, bonds, Forex currencies and several commodities. Gold, Oil, and EUR/USD are the most popular assets in binary option trading.

How Binary Option are Priced?

Binary options contracts are priced in a similar way as standard options. Traders in order to determine if there is value in buying a put or a call binary option they must evaluate three factors: 

i) strike price, 

ii) underlying price of the financial instrument, 

iii) implied volatility of the underlying instrument. 

Two types: Binary call and put options

■ if a binary trader believes that the price of an asset at expiration is going to be higher than its current strike price, he buys a binary call option.
■ If a binary trader believes that the price of an asset at expiration is going to be lower than its current strike price, he buys a binary put option. 

In-the-money & Out-of-the-money binary options 

If indeed the price of an asset at expiration price is higher than the initial strike price then the binary option is in-the-money and the Payout is taken by the trader. If the price of an asset at expiration price is lower than its strike price then the binary option is out-of-the-money and the trader suffers losses. Usually a refund of 5-15% is paid back to the trader’s account by the binary option broker.

Binary option Breakeven Point or Tie

A Tie outcome at expiration is referred to a situation when the strike price of an asset is equal to the price of the asset at expiration. In that case the Binary Option is at-the-money and the 100% of the initial investment is returned to the trader’s account (Tip: be full aware of your broker’s policies before you open a trading account).

Time-to-Maturity of a Binary Option

Binary options are usually traded in a wide time frame, from 5 minutes to 5 months. 

 Forex Brokers Review

 Binary Brokers Review

 

Some important Rules when trading Binary Options

a) Technical Rules

1) Focus on a couple and not on many underlying assets

Focus on a couple of underlying assets than on many assets. In that way is easier to analyze the fundamentals and to keep up with the latest news. Furthermore it will be easier to observe periodical price fluctuations and get trading signals.

Example:

For example, the price of Oil tends to rise in September, when heating oil is ordered in advance, towards winter. 

2) Find price correlations between assets

Find correlations between the price fluctuations of different assets and exploit that knowledge by purchasing put and call options.

Example:

The price of US Dollar is related to the price of all commodities that are traded in US Dollars. At periods when the US dollar is weak, the prices of major commodities tend to rise, and vice versa. This correlation is very strong especially as concerns the prices of precious metals. Take for example the first decade of the millennium (2000-2010), the USD is weak against the EUR and the price of commodities is skyrocketing, especially the price of gold. 

b) General Rules

3) Manage your Portfolio with Discipline

You are trading in a very risky environment and that is why you must trade wisely. Manage your portfolio constantly and eliminate the risk that you are not willing to accept. For example, if you will be soon obligated to make a withdrawal, avoid heavy trading for that period. 

4) Develop a Binary Option Strategy

Developing and implementing a binary options strategy is crucial for every binary trader. A binary options strategy includes a pre-determined set of rules. This strategy must reflect the trader’s long-term objectives and his profile, but also the accepted level of risk exposure. Furthermore, it is better to pick a strategy that will be flexible to any future market conditions rather than implementing one-directional strategies. 

5) Take advantage of the special promotions and available bonuses

Binary options brokers offer several promotional packages and bonuses from 10% to 50%. Sometimes high bonuses are only available for professional or VIP accounts, in that case prefer to wait and raise money to take advantage of the full deal and don’t be in a rush.

“Learning to wait and acting only when the perfect timing occurs is rule No1 for professional traders”. 

6) Learn your partners and familiarize yourself with their platforms using their available demos

-First of all, it is highly recommended to review extensively many Binary Option Brokers before you choose one. AtTradingCenterthere are many binary brokers reviews available. In addition search about particular policies that you may be interested (for example withdrawal policies).

-Secondly, take advantage of any demo available by the binary broker and familiarize yourself 100% with its offering platform. “Practice will sharpen your skills and minimize your risk exposure as first comer”.

 

Here are some significant differences between Standard and Binary Options  

ASPECT

STANDARD OPTIONS

BINARY OPTIONS

■ Risk Exposure

Risk Exposure is Variable

Risk Exposure is Fixed

■ Profit Potential

Profit Potential is Variable

Profit Potential is Fixed

■ Market

Standard Options are Traded on Secondary Market

Binary Options are not traded on Secondary Market

■ Right to Buy

Standard Options offer its holders the Right but not the obligation to Buy the Underlying Security

Binary Options does not offer such a Right

■ Collateral

A Collateral may be demanded by a standard option broker

No Collaterals are demanded by binary brokers

■ Expiration

Expire on the 3rd Friday of each Month of an Option Contract

Expire in a wide Time Frame (from 5 minutes to 5 months)

 

Compare Binary Options Brokers at Binary Value:

» Best Brokers: Gold Traders

» Best Brokers: Stock Traders

» Best Brokers: Forex Traders

 

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MORE Reviews

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What are Binary Options?

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