A binary option is a trading instrument that can be anything from stocks and bonds to currency pairs to indices to commodities. The payoff for a binary option is often greater than most profits generated while trading, making binary option trading a popular form of trading.
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Binary options are either all or nothing. The goal of the options is to predict if the asset will rise or fall in price, generating a profit or a loss, or an all or nothing. The payoff for a binary option is based on the level of payout offered by the trading broker. The payoff’s offered are anywhere from 60 to 400% of the value of the trade.
There are three elements that drive a binary option and they are the underlying asset, the option contract and the rate and specified time frame and the area of the market involved. The assets include a selection of commodities, currency pairs, indices and stocks. Some traders prefer to specialize in one area of binary options, learning all they can and developing trading strategies just for that particular asset while other traders like to fill their basket with different eggs.
When trading binary options, the trader is required to choose a time frame when the trade will take place. The time frame can last anywhere from 60 seconds to a month, depending which length of time frames the platform supports. If the platform includes features such as Call Now or Roll Back, the trader will have to always be aware of how much time is left in the trade if either Call Now or Roll Back is to be exercised.
To make a profit trading options, the trader has to predict whether the price of the asset will rise or fall in the time frame specified. If the trader thinks the price will rise will post a Call and if the trader thinks the asset will fall will post a Put. If the trader is correct, a profit will be made and if the trader is incorrect, a loss will occur. Depending on the platform’s payout, profits can be quite significant, and that is part of what is attractive about binary trading.
Some binary trading platforms offer a demonstration account that allows the trader to test drive the program before signing on as a client. Some demo programs are only activated when a trader establishes a live account with a minimum amount of funding.