Most people should be familiar with the very basics of trading – the person who wants to trade has to study the market. If he thinks a price of a certain asset will rise, he will buy it and eventually sell it with a lot higher price profiting from the difference of the prices.
When it comes to binary options, trading is not exactly the same. The buyer (or trader) will still look into the market and he will still try to decipher the situation and figure out which way the market is moving, but the outcome of this and the way it is possible to profit is different from regular trading.
The differences will be explained here:
1. When in traditional trading there are many possible outcomes, none of which are known when buying the asset, then in binary options trading there are just three possible outcomes – the asset expires in-the-money, out-of-the-money or at-the-money. All of these are fully known when buying the option and therefore all potential risks can be taken into account beforehand.
2. In traditional trading, the profit or loss depends on the magnitude of the rise or fall of the price of the asset. For example, if two hundred shares are bought at ten dollars each, the amount of the loss or profit depends entirely on how much the price of the asset falls or rises.
In binary options trading the only thing that matters is the direction of the movement and not the size of it. Let’s suppose a buyer puts a two thousand dollar call option on an underlying asset with a 71% return rate. He knows from the start that if the option finishes in-the-money, he will receive $3420, but if it expires out-of-the-money, he will receive a 15% return of three hundred dollars. Because all of the outcomes of binary options trade are known before placing the call option the risk is reduced.
3. The asset is owned by the trader in traditional trading, but in binary options, the buyer is only trading on the performance of an asset.
4. When in standard trading the buyer needs an in-depth knowledge of the market and the asset being traded, then in binary options trading the buyer just needs to have a sense of direction in which the price of the asset is likely to move.
5. The asset purchased in a traditional way can be sold whenever it suits the trader. When buying a contract in binary options trading, the buyer can choose between different expiry times, end of the day, one hour, one month etc. Once the expiry time has been selected and the option is bought, the expiry time can not be changed.
Binary options trading is a unique method of investment and it creates an exciting offer for those who want to control their investment risks.