Binary Option Guide
Definition of a binary option
A binary option is a type of ordinary option, based on the fulfillment of a certain condition at a certain time, allowing you to earn on the forecasts of changes in asset prices.
In fact, a binary option is a convenient financial tool for earning money on price speculation. It is allocated with a fixed value, that is, the holder of the option will receive exactly as much as was agreed in advance. Many people compare the principle of binary options with a game of roulette or with a bet, and in some ways they are right.
The principle of binary options
For a trader to be profitable it depends on his ability to correctly predict price changes and calculate the time when this will happen. If he turns out to be right, he will receive a predetermined amount; if he makes a mistake, he will lose the money invested in the option.
What is important to clarify, the size of the changes often does not play a role at all .For example, if a trader believes that the price of an asset will rise by a certain amount, even if only slightly, and acquires the corresponding option, then if he proves to be right, he will receive money. How much the price has risen, it is not significant here, the fact of a change in this direction is important. If the price, on the contrary, goes downward, the trader will lose the money invested. The same will happen if the price does not change by the end of the agreed period. The end time is called the "date of expiration." This period can take a couple of minutes or several months. Typically, short-term options are popular.
The amount of income received depends on transactions, usually 60-70% of their value, but transactions with 100% profit are also found. As a rule, the more difficult the forecast itself, the higher the profit. Binary options are completely legal and based on correct forecasts, that is, almost everything here depends on the traders themselves.
Types of binary options
The abundance of a variety of transactions in binary options suggests many varieties of option contracts. But there are several common ones that are usually most popular.
- • Call / Put options - the most simple and clear form of binary options. It indicates the predicted price movement. If the trader believes that the price will go up, he takes a Call option. If he believes that the price will drop, he takes a Put option. And it doesn’t matter if, for example, there will be a rise in price or a significant fall, the trader will still receive a profit equal to the previously agreed amount. Or get nothing. The type of asset for which prices are predicted is not significant, it can be either currency, bitcoin or spot metals. Forecasts on price volatility are usually based on technical analysis; such options are recommended primarily for beginners.
- • One Touch / No Touch options - the so-called “Touch” options. A more complex type of option contract, here it is necessary to predict the contact price of the agreed level, for the indicated time. It does not matter where the price will be at the time the transaction is completed or how long it has stayed outside the required level. Important - the very fact that the price touched the target. As soon as it happens, the trader gets the money. Typically, the amount of profit depends on the duration of the contract and the path that the price will go before it reaches the desired price limit.
If the trader believes that the price will reach a certain limit, he enters into a contract for the One Touch option. But it can act on the exact opposite outcome: that the price does not reach the target, then the No Touch option comes into play.
This type of option is associated with increased risk and is not recommended for beginners.
- • Range Options - also known as Barrier Options and Range. This is a more complex view of One Touch. There is a certain corridor beyond the previously determined price boundary, and the price should not just touch it, but also hold on to it until the expiration date. There are many forecasting options, a trader can play both by keeping the price in a certain range, and vice versa - by lowering the price beyond it and staying there. These are very complex and diverse type of binary options. Depending on the size of the range and time, you can get a big profit, but the risk, in this case, is much higher. Recommended only for experienced traders.
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