What are Binary Options

The Binary Options are the easiest financial instrument available nowadays, that is becoming more and more popular everyday that passes. In fact there are more and more Traders, professional Traders and new Traders, that decide to invest on Binary Options. The why is easily explained: Binary Options are the easiest and most flexible financial instrument ever.

As the name itself suggests (“Binary”), with the Binary Options you will have to make a choice, to take a decision. The only possible outcomes of a Binary Options are two, therefore you have to choose between the first one and the second one. It means that even if you don’t know what a Binary Option is, and how Binary Options work, you will already have the 50% of chances to take the right decision.

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But what do you get when you make the right choice? Easy: profits. Yes, because Binary Options are a financial instrument and thus, you will have to invest on them. You are the one that decide the amount of money invested (You can start with only 10 EUR or 10$ for example): this amount depends on different factors of course. Firstly how much money you can afford to invest (One golden rule, in all the types of investment is to never invest an amount that you can’t afford to lose) and then on your Money Management Plan for your Trading Activity.

But let’s start with the basics of the Binary Options Trading. Now we will show you what are the features of a Binary Option.

Binary Options Features: What are Binary Options and how they work

Now that you have understood what are Binary Options, we must analyse the features of the Binary Options. With the Binary Options you have to make a choice between two different possibilities. But what are these two possibilities?

You will have to make a prediction on the price movements of an Asset within a period of time (That is called Expiry Time or Expiration Time). As we said before, the possibilities are two: this because the price of an Asset can increase or decrease.  If for example the value of the Google’s Shares is $80.50, the price can surely change and it can be higher or lower. Therefore with the Binary Options you only have to choose if the price will be higher or lower. Pretty simple to understand for everyone.

Whereas an Asset, is the underlying instrument of the Binary Option: normally they are currency pairs, commodities, stocks and stock indexes. When trading Binary Options, you are the one that choose the Asset depending on your market analysis and on the type of Asset that you prefer. For example, a Trader that used to trade Stocks would probably choose for Stocks Assets with the Binary Options too. The decision of the Asset can be done on your market analysis too: you will have to read the chart of the price of an Asset and then decide if you should invest on that Asset or not.

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Lastly we have to consider the Expiry Time: in this case too, you are the one that decide the best Expiry Time for your Binary Option. There are different Expiry Times: from 30″ up to 1 day or even 1 week. The most used Expiry Times by Traders are:

  • 60″
  • 5 Minutes
  • 15 Minutes
  • 1 Hour
  • 1 Day

Binary Options Payouts

At this point we must introduce the Payouts of the Binary Options. Because in case that your prediction on the price movement of an Asset will be correct, you will gain some nice profits (Called Payout). Whereas in case that the prediction will be wrong, you will lose the money invested on the Binary Option. Although sometimes you will receive a kind of “refund” on your investment. The Payout is a return on the investment done: for example if the Payout is 80%, it means that you will earn the 80% of the capital invested on the Binary Options. Thus if you invest 100 EUR or $100, you will earn 80 EUR or $80 (The total would be 180 EUR or $180: the amount invested + the profits).

The Payout depends on:

  • The Type of the Binary Option: there are different types of Binary Options, such as the High/Low Binary Options (Known as Call/Put Binary Options), the One Touch Binary Options, the Range Binary Options and the 60″ Binary Options. Each Option works in a different way.
  • The Asset: there are four groups of Assets (Currency Pairs, Stocks, Commodities, Stocks Indexes). The Payout will change depending on the Asset chosen.
  • The Expiry Time: it can change the payout too, depending on the one that has been chosen.

However normally, the average Payouts for the High/Low Binary Options (The one where you have to predict a raise or a fall in prices) is around the 70% up to 90%. Higher Payouts can be found with the other types of Binary Options such as the One Touch Binary Option: here the Payouts can reach the 200-300%.

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But the most important thing with the Payouts, is that you will know them since the beginning. Even before investing on a Binary Options your money. That’s right. You will always know how much you could earn, and how much you could lose with Binary Options. This one of the most important advantage of this financial instrument, that you will never find with other types of investment. In fact with the Stocks Trading, you can’t know how much you can earn: it depends on the variation of the prices of the Stocks bought. Whereas with Binary Options yes, you can know both the potential profit and the potential loss.

Binary Options Brokers

But how can you invest on Binary Options? Simple: you need an account with a Binary Options Broker. Today, there are countless Binary Options Brokers available on Internet. In fact all the Binary Options Brokers work online: they have a website, and a Trading Platform. You don’t even have to download the Trading Platform because is a web-based Platform, therefore it won’t slow down your computer.

Opening an account with a Binary Options Broker is pretty simple and after that, you will have to make your first deposit: said in other words, you will have to deposit an amount of money that you’d like to invest on Binary Options. Usually Binary Options Brokers have a minimum amount that can be deposited: it depends on the Broker that you will choose, but the average is around 100 EUR – 200 EUR or $100 – $200.  Of course, you should find a Broker that suits your needs: the amount deposited, should be an amount that you can afford to lose.

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Moreover, each Broker has different features and services: check carefully a Broker before decide to invest your money with them. And be sure to choose a Regulated Broker: because it’s possible to find Brokers without regulations too, also known as “Scam Brokers”.

Binary Options Trading: an Example

Let’s conclude our Article with a concrete example of Trading with Binary Options, so that you can understand how Binary Options work.

Trading Example:

  1. The Asset: as first thing we must choose an Asset for our Binary Option. In our example, we will choose the Amazon’s Shares because thanks to our markets analysis we predict a raise in the prices. The price of the Asset is $87.88 for share.
  2. The Binary Option Type: now we can choose the type of Binary Option that suits better our prediction. In this case, we decide for the High/Low Binary Option.
  3. The Expiry Time: in this case we are going to choose the 1 hour Expiry Time, decision based on our market analysis.
  4. Amount Invested: Sure of our prediction, we want to invest 100 EUR on this Binary Option.
  5. The Forecast or Prediction: As already said before, we will choose the “Call” Option because we think that there will be a raise in prices within the next hour in the Amazon’s Shares.
  6. Confirming the Binary Option: at this point, we only have to check that everything is okay and that we didn’t make a mistake while selecting the different features. We will know the Payout too: 80% in this case.

What’s next? Nothing else: after that we have bought the Binary Option we will have to wait the Expiry Time, 1 hour in this case. These are the possible outcomes at this point:

  • A) The prediction was right: after 1 hour, the price of the Amazon’s Shares is greater. Let’s say $88.24. Therefore our prediction was right and we will earn the Payout: 180 EUR.
  • B) The prediction was wrong: after 1 hour, the price of the Amazon’s Shares is lower. Let’s say $87.35. Therefore our prediction was wrong and we will take a loss: 100 EUR. Although some Brokers may offer a refund, that is around the 10-15%.

One last aspect that we should underline with Binary Options, is that the variation of the price of the Asset is the key point. It doesn’t matter how much the price changes: the only thing that matters is that changes, even for just 1 decimal point. For example, in case that the Amazon’s Shares increase in value from $87.88 to $87.89 (Just $00.01 of variation) and we had chosen a Call Binary Options (Thus we had predicted a raise), we would have won the Binary Options and the related profits.