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What are binary options

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 Trading in binary options has become very popular in a short time. A lot of people even make a living from it. But what exactly are binary options? How are they different from normal options? And how can you make money with binary options? In this article we explore these questions.

Binary options (also called 'digital options' or 'all or nothing options') are a special type of options. (Are you not familiar with options? Please read the article 'what are options'.) As with ordinary options, binary options have an underlying asset, which can be a stock, but also, for example, gold, oil, the S&P500 index, or the US Dollar. How much you earn or lose with a binary option depends on the development of the value of the underlying asset.

The characteristics of binary options

Two key features of binary options are:

Given these characteristics, binary options are a lot simpler than 'regular' options (read also the article 'The difference between binary options and 'regular' options'). The moment you purchase a binary option, all important parameters are fixed: Because all these details are fixed, the only question you must answer is: does the underlying product go up or down? If you are good at predicting this, you can make a lot of money with binary options. And since you can set exactly how much money you are willing to risk at the purchase of the option, you can never lose more than you want to.

An example of binary options trading

Suppose you believe that Apple’s share is currently overvalued at $672,81 and will fall in value during the next trading day, you can then choose a binary option on the share Apple Inc.(AAPL) to take advantage of the expected price drop. The option has the following characteristics at the time purchase:

After you have closed the option, you do not have to watch the price any more. You can immediately focus on other options, or other fun things to do. The option expires automatically after 24 hours and the result is processed in your trading account. In this case, it appears that Apple shares initially rose slightly in value, but eventually fell to 670.24 U.S. dollars. That means you option was "in the money" at the time of expiration. You get 87% return on top of the amount risked, which means you get back 93.50 pounds; a gain of 43.50 pounds. Not bad!

Different types of binary options

There are some special variants of binary options (for example, 'touch/no touch' or 'boundary in/out') and some more advanced features (such as 'high yield' or 'early closure'). With those you have the ability to execute a more complex trading strategy. Would you like to know more about this, then please read the article 'Different types of binary options'. You too can make money with binary options Share this page with your friends Share this with others Special offer! 

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