Binary options are an interesting financial instrument that is growing in popularity. They are accessible to a private investor who is not connected with a bank, they are easy to learn, and yet they still offer a large potential for profit. If you decide to get into binary options, then you need to know the basics of the market and how to trade the options.
In this article, we will explain how binary options work and discuss how to trade them.
Binary Options Basics
Binary options are a simplified financial instrument. Every binary option is based on an underlying asset, like a stock, commodity, or currency pair. Each option pays out money based on whether the price of that asset goes up or down in a specified time period.
That is why they are called binary options: they have only two outcomes. Either the underlying asset moves in the right direction and the option pays out, or the asset moves in the other direction and the owner gets nothing.
Why Trade Binary Options
That simplicity is one of the main draws of binary options. Instead of trying to worry about how long to hold an asset and the complexity of predicting where the asset price will move in the future, it is a simple prediction of whether the price will go up or down in a set time period. These range from minutes up to months, so it is possible to trade binary options in the short, medium, and long terms.
Diversity: trading on a wide range of assets
In addition, binary options provide access to a wide range of assets that would be out of reach otherwise. For example, binary options make it possible to buy and sell on the commodities market. Instead of needing to take possession of the commodity, your use of options means you are trading based on the commodity’s price as if you owned it. The same reasoning applies to other markets that might be hard to access, like foreign exchange. Normally, breaking into forex requires a separate broker. If you are using binary options, then you can trade on a currency pair’s price while you trade on other assets at the same time.
Variations: choosing the most appropriate time period
There is a lot of complexity beneath the surface of binary options. For example, one of the most important choices you can make is about the time period over which you want your options to run.
Short-term options can be hard to predict. Nobody really knows how an asset price will move over a period of a few minutes or hours. On the other hand, if you develop a consistent strategy, you can make money that way and you do not need to wait long for the options to end.
Longer options might be safer, but you need to wait before you find out if you made the right choice and collect your money.
Advanced Trades: One Touch and Range Binary Options
Many binary options brokers, such as UltraTrade, offer advanced trades. For example, the “One Touch” trade is a variation on the binary option that requires a little more finesse.
The One Touch contract requires that the price of an option touches a particular level once during the time period. If it moves away from that level afterward, it does not matter.
The “Range” option is a more specific type of option. Instead of the price being above or below the original price at the end of the contract, the price needs to stay within a certain range of prices. If it moves outside of that range, the contract will not pay out. The direction does not matter, so a range contract can allow the price to move up or down.
Binary options are available in just about any asset class. That includes stocks, commodities, forex, and indices. You can focus on just one asset class and specialize your knowledge or spread out among several classes to diversify. UltraTrade offers many different types of contracts and assets to provide you with a wide range of choices. Furthermore, it is possible to hedge with binary options. You can use them to offset risk in your portfolio, whether that risk comes from other binary options or a different trading vehicle. Basic options are already flexible, and the variations and possibilities means it is easy to fit them into your trading strategy.
You should consider binary options if you want to experiment with a new way to trade. They can be quite profitable as long as you do not choose a broker that has large fees. Do some research ahead of time to find a good broker and decide what assets you’d like to trade against. Then start small and work your way up to making them a major part of your trading portfolio