Monday, 18 July 2011

Binary option : New form of Financial Trading

Binary Options is a simple form of trading, compared to other market investments. It is known as ‘binary’, as there are two outcomes, a trader should know before investing. There is either a predetermined amount or nothing. It is important to note that, when you initially invest a predetermined amount, you do not actually buy the stock, currency pair, entire index or commodity, which is the underlying asset. While investing, the trader has to decide which option he would like to trade.  There are two options, either ‘call’ or ‘put’. If the underlying asset expires above the strike price, it is a call option, which means that the underlying asset of your investment will go up between the time of expiry, which could be an hour, a day or a week later. For put option, the expiry will be in the money, if the underlying asset expires below the strike price, whereby the trader will be paid, but if it is out of money, the trader will receive nothing, in most cases.
There has not been much research on trading with binary options, as one need to only know the trend of index, commodity, currency pair and stock is in the desired period. To achieve profit with this option is not easy; hence one has to make a complete research before investing and trading with binary option. With proper market research, one can receive short term returns much greater, compared to other investments, or with wrong prediction, you might lose your entire investment, within an hour. There is no guarantee for profit, hence market research of underlying asset on which you plan to invest, is very essential.
Binary options come with advantages and disadvantages and are an alternative for hedging or speculating. The positive side is that a trader knows the risk and reward, expiry date, innumerable strike prices, no commissions, access to multiple assets globally and customizable investment.  Traders need to keep a close watch on their traders’ rules regarding risks and payouts, how expiry prices are calculated and what could happen if the option expiry is directly on the strike price. It is imperative that all traders make a research of their broker’s reputation, before trading.
Trading strategies of binary options are the ones in which a trader can stop or reduce assets that has high profitability of ending out of the money. Any binary option strategies can be helpful to the investors, as long as they know when to purchase the type of option that would maximize their profits from the traded assets. These options are further enhanced, as they have only one strike price. If an investor bought a call option that closed above the strike price, he will receive maximum payout. But, if the market price is below the strike price, the investor will lose everything, which is a fact for the binary put options. An extreme quick turn around of this option could be within an hourly or daily expiration time. Within last few months, investment in binary options has become very popular, due to high volatility in all types of investment.


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