Trading Binary Options is suddenly becoming a mainstream method of trading the financial markets. Binary options, which are also referred to as “All or Nothing” or “Digital Options,” offers traders an online platform which offers a pre-determined fixed return of investment that’s known prior to the beginning of the trade.
So a trader decides to place a $100 trade on a currency pair (EUR/USD) in the Forex market as a binary options trade, and before he activates the trade, he knows exactly the investment that he will be placing ($100), as well as how much return that he will be getting back, provided the trader is correct on the trade.
So as a result, the trader receives a predetermined payout provided that his binary option trade happens to expire “in-the-money.” The trader also knows the exact amount that he can potentially lose (such as the $100), which was his initial investment on the trade, if the binary option happens to expire “out-of-the-money.” The trader does not lose any more capital other than the $100 regardless of how “bad” the market turns against him on the particular trade.
One of the primary differences between a traditional options trade and a binary options trade is that it doesn’t matter what “degree” or how far the binary option is either “in-the-money” or “out-of-the-money.”
For example, on the currency pair Forex binary option trade:
You purchased a “call,” thinking that the “currency pair” EUR/USD will rise before the time expires on the binary option trade.
• You purchase the call for $100 at 1.4576 at 10AM
• The Binary Option expires at 11AM
So once it expires at 11AM and the currency pair is anywhere above 1.4576, even 1 pip, then you finish “in the money” and the predetermined amount is credited to your account.
All of the financial market assets such as stocks, the forex market, the Indices and Commodities, can all be traded as underlying assets when it comes to binary options.
Assets Which Are Available For Trading Binary Options
One of the major reasons why Binary Options has become extremely popular among traders over the past couple of years is the wide range of assets which they’re able to trade under a single Binary Options Brokers account.
Unlike the other methods of trading, Binary options combines all of the best methods of trading in a shorter set time span. The advantage of binary options is that it allows you to trade virtually any asset from all the major markets.
Trading The Forex Market 24/7
Just as trading the Spot Forex market has become a preferred method of investment for a lot of traders, trading binary options allows them to make higher returns in a shorter time frame.
With the majority of the major binary options brokers, they can actively trade all of the major (as well as minor) currency pairs, such as the EUR/USD, USD/JPY, USD/CAD etc.
The actual returns when your trading Forex Binary Options can be anywhere from 65-75% percent for a “in-the-money” binary options trade.
There are also a few established trading strategies when it comes to binary options, which combines both the spot forex market as well as the forex binary options market. Trading Binary Options can also help you in hedging your Spot Forex trades to minimize loses.
Trading Stocks via Binary Options
When it comes to day trading your favorite stocks, binary options does not disappoint. Although the number of stocks which you’re able to trade varies depending on the binary options broker.
The range of assets which are made available for trade from the stock markets includes the majority of the “movers and shakers” such as: Apple, Google, Microsoft along with a lot more.
The majority of the binary option brokers will also allow you to trade virtually any commodity that’s available in the Futures market.
Trading The Indices
The index options markets, which composes of all of the major stock exchanges, are usually the best as well as the favorite trading instruments for investors who happen to trade binary options. Since trading is available electronically online, binary options can be traded from anywhere there’s an Internet connection and at anytime the markets are open.
The constant liquidity of the Index Exchanges makes it an excellent choice for hedging, and the best part may be that they are usually taxed a little lower than stocks. Because of the superior trading platforms which are offered by the binary options brokers, monitoring as well as understanding any price fluctuations is just a click of a mouse button away.
The following indices are usually available on the majority of the binary option brokers trading platforms: NASDAQ, NASDAQ Futures, Dow Jones Industrial, S&P 500, and the Vix, among others.
The Dow Jones Industrial Average
The DJI combines the prices of the top 30 most traded stocks which are listed on the New York Stock Exchange. They include the absolute top corporations today, which includes: Coca-Cola, CitiBank, Microsoft and Amex, along with many others.
Binary options trading for the Dow is typically traded once every hour. This particular index is traded from Monday to Friday from 9am – 4pm EST and its symbol is DJI.
The NASDAQ Composite Index
Combines the average prices of stocks which are listed under NASDAQ’s stock market. It includes a variety of established companies along with smaller or new ones as well. It’s considered to be one of the biggest Indices because it lists over 3,000 securities. It’s traded from Monday to Friday from 9am to 4pm EST. It’s symbol is IXIC.