Binary options trade have exploded in popularity as traders search for new ways to make money. The name 'binary options' derives from the fact that there are only two outcomes for each trade; either you will make a pre-determined profit, or you will lose your initial investment. This simplicity has made the concept of binary options trading popular, but is it safe and reliable? In this article we will take a look at the mechanics of trading binary options and some of the factors that affect payout rates.
Binary Options trading is a risky endeavor and should be done with caution. There are many scams in this space and it is essential that you use a reputable broker with a good reputation. Binary options are based on the price of an underlying asset, such as stocks, commodities or currencies. The asset's price will be affected by supply and demand, news events and a number of other factors. The key is to predict whether the asset will close higher or lower than the strike price at expiration. There are a number of different types of binary option available, which range from the simple up/down or high/low to the In/Out, Range or Boundary options.
Once you have selected the type of option you wish to trade and the amount you want to invest (there are minimum and maximum amounts that can be traded) then you simply click a button to place your trade. Most brokers provide a free demo account so that you can practice before committing any real money. As with any kind of trading there are risks involved, but with proper education and discipline, Binary options trade
can be a profitable endeavor.
In addition to placing your trades, you must also be aware of the timeframes and expiry dates of each option. Most brokers allow you to sort by expiration date so that you can select options with a short or long term expiry. Options can expire in as little as 30 seconds up to a year.
Another factor that affects payout rates is the 'price action' that occurs at the opening and closing of each trade. The price of an option can fluctuate dramatically in a matter of seconds, especially if the underlying market moves significantly.
Like any other trading instrument, binary options have a bid price and an offer price. The higher the bid price, the more the option is likely to be in-the-money at expiry. Alternatively, the lower the offer price, the more the option is likely to close out-of-the-money at expiry. This is why it is important to always research the binary options brokers you are considering using before making a commitment to them. FINRA regularly receives calls about troubling situations involving binary options trading firms that do not deposit investor funds into the investors' accounts or which deny requests to return funds. These issues can have serious ramifications for the investors' financial health. Fortunately, these kinds of fraudulent activities are becoming less common as regulated brokers begin to dominate the market.
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