Binary options are simple fixed reward contracts. A trader receives either a fixed profit or fixed loss. They are designed to be very simple to trade.

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Binary options have two possible outcomes, e. Binary trading is extremely hot right now due to how easy it is for anyone to do it. Binaries are the future of online trading. Do you think the price of something gold for example is going to be higher or lower in 1 hour?

One hour later your binary trade reaches the expiration time. At this time you are either in the money or out of the money. It is that simple — Binary Options Trading is designed to be easy to trade for everyone! Here the trader has a choice of up or down call or put. You decide to make a trade based on that belief.

This the total amount of money you are risking. The best part about binary options is that your risk and return are fixed and known up front. You can never lose more money than your trade amount. Your return is known up front so you know exactly how much money you will make if you win. The date and time you chose as part of your trade are called the expiration date or maturity date.

In the money or out of the money. The trade is done and your payout is made to your account virtually instantly. Your payout is the same regardless of how far an underlying assets price moves. That is one reason so many people absolutely love trading binaries. You just pick from a one or the other choice and hold on for the ride. This example is the most common type of binary option traded today. You make the cash or you get nothing.

There are more types or styles of binary trades available. There are a number of different classifications of binary options trades. All of these trades have that basic definition in common, but differ based on a number of elements including the type of payout and the conditions of the trade. These days the newest trend and online trading is binary options. Many companies online promise you can make a lot of money trading binary options, but what are they?

Binary options are trades you can make which have a fixed risk and reward. You can also look at them as another way of trading an underlying financial instrument, since you can trade stocks, currencies , commodities, and other assets as binary options. Although binary trading has exploded in popularity over the past couple of years, many active options traders are unfamiliar with them.

This exciting, new area of trading is winning converts each day. In addition, they have several types of binary options at their fingertips, giving them a variety of ways to implement their trading strategy. These are likely the most popular of all binary options as they are the easiest to understand, and therefore trade. Puts — Up Or Down Call options are also known as digital options and are a relatively simple form of binary option.

A buyer will choose to purchase a binary call option when he or she believes that the asset price will rise over a period of time. In order for a call option to be successful, the asset price must rise above the price that the asset was at when the buyer placed their bid. This is known as the strike price.

A put option is the exact opposite. Instead the buyer is predicting that the asset price will drop below the strike price at the time when the option expires. If this occurs, the buyer receives the full cash payout offered by the option. Most consider them to be the simplest of all binary options types. For clarity, a call is simply a contract in which one party agrees to sell its ownership stake in an asset at a certain price to another party.

If the price of the asset increases, the second party i. A put is a similar type of contract.

The difference is that the buyer of the contract profits if the price of the asset falls. These instruments involve price ranges, or boundaries. Range Options Known as tunnel bets and boundary betting, range options work by choosing whether a price expires within a particular price range.

I think the range options have the most types of synonyms. They are also known as in and out options because you are either betting in the range or outside of the range. They present a higher risk of loss, but also offer a higher return. If the price touches the target price, and you guessed it would do so, the trade closes and you receive your expected return. Otherwise, the trade remains open until it expires out of the money. Touch Option Trading — If the price hits the light gray area, you win!

Touch or No Touch Options This style of binary option is simple and popular. They work by having a certain trigger price point. If you believe the assets price will hit that price point in a certain time frame you have to bet on the touch.

If the price touches that trigger then the trader wins and the trade is over. If the trader bets against the price touching a certain point then the opposite is true.

The difference is that two price barriers are used rather than only one. There are two different types of binary options trades as classified according to the payout. Cash or nothing is a trade in which the participant either receives a fixed amount of cash for winning or nothing for losing.

The trader generally forfeits the entire risked amount, however some brokers have rebates on losses.

3 Ways to Understand Binary Options - wikiHow

Asset or nothing is just like the cash or nothing type, except that the trade pays out the value of the underlying financial instrument instead of cash. These types of binary options are not as prevalent as the very popular cash or nothing style of options. Another way of classifying trades is to refer to American-style or European-style trades. That means if the strike price is hit before the maturity date is reached and then the trade goes back against you, you lose.

In other words, this type of trade is more specific where timing is concerned. There are two types of instruments: Cash Or Nothing Options Cash or nothing binary options refer to the fact that you either finish the trade in the money our out of the money. You either won money or lost your money. The real cash or nothing binary options are set up this exact way, with a fixed return if you win and a loss of your trade amount risked if you lose.

The percentage return the trader receives if the instrument expires in the money is posted by the trade. It is known before the trade is executed. This a major advantage over other types of trading where the amount of potential profit or loss is unknown. This is a variation of the conventional cash or nothing instrument. A lot of binary options brokers offer rebates to traders whose options expire out of the money.

Not all brokers offer rebates. Those that do not offer them usually extend other perks, such as higher returns for trades that expire in the money. Some binary options brokers offer a feature that allows you to close your trade within minutes of executing it.

By exiting the trade early, you are able to limit your losses. You can also use this feature to lock in early profits on a trade. Closing the trade early helps you to realize early profits, and avoid forfeiting them if the asset turns.

Examples of this buy-out clause include 24Option. You can even specify multiple prices you believe will or will not be reached in a given time period. The different rules concerning expiration dates are referred to as European- or American-style trading. That means there is still plenty of research, testing and demo account trading. If you can come up with a consistently profitable method and put it into practice, you could potentially trade binary options for a living.

The types of binary options offered by various brokers may have little influence on which brokers you ultimately work with. A lot depends on whether you intend to execute the instrument types described on this page. Some, however, are willing to execute high-yield instruments, such as boundary binary options.

There is no deposit required or credit card information needed to get your practice trading account at MarketsWorld. They are also regulated by a highly respected regulatory authority in the Isle of Man UK.

Your deposits and funds are safe at MarketsWorld. Read my top rated binary broker review of Markets World. Sitemap Binary trading carries significant risk. Never invest more than you can afford to lose. This site is not financial advice or any offer of financial advice. This site is for entertainment and informational purposes only. Clicking on links to external sites may result in affiliate income for the publishers of this website.

NOTICE - This website is not a binary trading website and is NOT owned by any binary options company. We are informational and entertainment only. No trading is offered or solicited by BinaryTrading. Binary Options Companies are not regulated within the United States. These companies are not regulated, managed, connected or affiliated with any of the regulatory agencies such as the Securities and Exchange Commission SEC , Commodity Futures Trading Commission CFTC or National Futures Association NFA , or any other US Regulatory Body.

Please take notice that any unregulated trading acitity by U. Citizens is considered unlawful.

Trade at your own risk. Please be aware of the risks inherent with binary options trading and trading the financial markets; never invest more money than you can risk losing. The risks involved in trading binary options are high and may not be suitable for all investors.

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