Those who are new to binary options trading and want to invest money in this platform should learn about it before diving into this sea. What is binary options trading? It is the most common question that comes in one’s mind. In binary options trading a trader buys a contract on an asset (currency, commodity, stock) and predicts the future value of the asset. If the prediction of the investor is right, then his contract will be successful and if the prediction turns out to be wrong then the investor will lose the investment.
How Does A Binary Option Work?
The first thing that you need to do in order to start your binary options trading is create an online account on some binary brokers‘ website. After creating your account, you can select the asset of your choice and buy a “Call” or “Put” option. If you think that the price of your asset will increase at the expiration period, you need to buy a Call option. Put option should be bought if you think the price of asset will decrease.
Expiry Of Contract
Generally, starting length of binary options contracts is one hour. Most of the options start at one hour in length, but you can also secure option contracts that may last up to 5 to 15 minutes. You will notice fluctuation in the price of asset during the period, but this is insignificant for you. This is because only the price of contract at the time of expiration will matter for you. The fluctuation will only indicate where the market is heading.
The End Result
You will find yourself “in the money”, if your prediction about price movement of asset turns out to be correct. You can get a return of up to 150% to 185% on your initial investment. You will be left with nothing if your prediction goes wrong. Some brokers give refunds of up to 20 % for contracts that end in out of money.
An example would help you understand the scenario in a better way. Let’s say you buy a $500 call contract on a company at the strike price of $85 per share. The expiration period for this contract is one hour. If the price of the share hits $86 or above at the expiration period, you are “in the money” and will get $750 as a return, $500 being your original investment and $250 which you just earned during one hour.
Risks In Binary Options Trading
You need to know that there are great risks and rewards involved in binary options trading. That’s why should make a thorough research on your own to know about the possible risks and the terms and conditions of contracts.
Finding The Best Broker
A good and experienced binary options broker would be of great help in making you successful in this type of trading. You should always prefer someone who has good knowledge about the trading and offers you a sound platform. You should also make sure that your broker offers feasible terms and conditions.
Binary options brokers will also give you advice regarding investment and interest bearing accounts. The most important objective of the broker is to act as a liaison between you and the market. A good broker will help you identify the best option for you to invest in and guide you in your trading. The broker will also be responsible for the transfer of funds to and from your account.