Time For Binary Options Trading 101
Understand the risk and rewards of this relatively new trading mechanism before you place your money on the table. Binary or digital options are often misunderstood and investors believe that the simplicity will bring them great sums of money. There are payouts, fees and risks plus different liquidity structures in this type of trading. If you want to speculate or hedge, you can consider binaries as an alternative, but you need to understand the outcomes that can impact your portfolio.
Definition
Binary options are classified as exotic options. They are easy to understand in terms of functionality and are considered fixed-return options (FRO). The option has a definite expiry date and time and a strike price. The strike price is used to describe stock and index options where the price is fixed in the contract. The strike price determines the market value of an options contract.
This trading format is a forthright way to gain returns from financial markets. The speculations are listed as a venture that a commodity will open or close based around a definite price. Traders predict that this commodity will raise or fall and if they are right, a predetermined payout is awarded. If the forecast on the trade is wrong, the investor will get very little or nothing. Options are determined by expiration time and the strike price.
Types
