All you need to know about Binary Options
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With the steady rise and immense success of online trading, it is imperative for every investor to understand the different investments available in order to make the right investment choice which fits the investor’s personality and are in line with his desired financial goals. In most traditional investments, when an asset is purchased, the investor invests in the monetary worth of the profit or loss of the asset, which is determined by the dynamic value of the asset. If at the time of sale, the value of the asset is higher, the investor makes a profit; conversely, if the value of the asset is lower, the investor loses. Binary options, on the other hand, works differently.
Binary Options is the estimate of the intrinsic performance of an asset during a giving period of time, which could be an hour or 3 months. They are investments which are made based on whether the current price of an asset will rise or fall by a set expiration time. Binary options are very popular because the offer amazing payouts, an investor can spawn as much as 75% of the investment on a winning trade. Binary Options are easy to use and understand. It has a fixed payout, which takes only two possible outcomes, the investor can make a profit or get nothing at all, which is why they are also known as all-or-nothing options.
An example of the way Binary Options work is, if the price of the stock for Edulin Corp is $100, and I purchase an option for $100 with a binary payoff at 75%, set to expire in 14 days. At the time of expiry, if the price of the stock increases to $103, I make $75 in addition to my original $100 investment. If the price falls below $100, I lose my initial $100 investment. However, if the price is unchanged, I could get my original investment back.
Similar to most investments, an investor can purchase Binary Options from a Broker. Investors do not pay any fees or commissions for trading Binary Options but Brokers make their money from the percentage discrepancy between the payout on winning and the amount collected on loosing trades. Binary Options are also, listed on some Options Exchanges and are very popular in Europe. In Europe, they are traded on the EUREX, while in the United States, exchanges like the Chicago Board Options Exchange trade Binary Options as well. Trading on the Exchange offers increased protection, there is transparency as the trader can see the results on the screen.
Like other forms of investments, Binary options have risks, and every investor should understand the risks and rewards when trading Binary Options, they require a sense of direction of the price movements of the underlying assets. Trading strategies like Fundamental Analysis and Technical Analysis can be used to increase the accuracy of price movements.
Trading Binary Options can be a rewarding investment, if the investor understands the risks and rewards and works with a Broker who is right for the individual and has the investor’s best interest at heart.
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