An introduction to binary option trading?

Posted by ayeshajaiswal on August 3rd, 2017

A binary option is an option in which traders pays off either in some fixed amount or nothing at all according to the price of the assets. Binary options are classed as uncommon alternatives, these are simple to apply and understand functionally. The maximum common binary choice is a "high-low" option that provides entry into stocks, indices, commodities and forex market. This option similar as a traditional option also has an expiry date/time and fixed price called a strike price.


There are two main type of option

1.Cash or nothing binary option

2.Assets or nothing binary option


1.Cash or nothing binary options where trade is done on fixed amount means. if an option expires 'in the money' then option holder will get fixed cash amount and if 'out of the money' then zero cash that means the trader will get nothing when asset's price goes out of the money.


2.Asset or nothing binary options where trade is done asset value that means if an option expires 'in the money' then option holder will get an amount equal to the market value of the assets while if 'out of the money' then the trader will get zero value.


In the binary option, owner pays some fixed amount of compensation if the option expires in the form of money and trader will get nothing if the option expires out of money. A binary option is a derivative option in which investors make a bet on the future price movement of an underlying asset. In binary option, a trader has to bet on any one out of two options 'buy/sell' basis two definite outcomes whether an underlying asset price will rise or fall in the near future and as a result trader will earn a fixed amount if the price of an assets goes in his favour. This option is different from the traditional option of the holder of the binary option has no right to buy and sell an actual security.


These are important elements to any binary option:

1.Cash settled

2.Put/call option

3.Expiry Date

4.Underlying Asset and its price

5.Settlement Price


In binary option for a trader, his bet works when the option expires 'in the money' that means the price of an underlying asset on any given future date closes more than the 'strike price' of an option on that particular date. If an option is 'out of money' means 'strike price' is more than the price of the underlying asset on expiry date (agreed date) then trader gets nothing out of that trade. Trading in binary option is similar to gambling when your profit depends on your luck as well as your strategies you used while trading. If the traders are new and don't know how to get the better amount they can refer best binary option trading tips given by financial experts.

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