It’s a financial option in which the trader relies on the asset to go either higher or lower. For example, if you purchase a higher option in trading binary, and the rate rises, you will get a return. If you purchased a lower option, you would get nothing and lose your investment.
To get started, you first have to know some basic terminology. Lets say you want to trade on currencies as an example. When you get ready to place your trade, you will have a striking price. This is the time your trade starts and locks in the rate at that point.
Now before your strike, you are going to have two options. Your first choice is a call. This simply means you think the asset is going to be higher than the striking price. The other choice is called a put. Basically you are saying that your asset at the time of expiry, will be below the striking point.
Going into a binary option trade, the trader already knows the fixed amount of return of investment, if he wins the trade. Many brokers will have a percentage of anywhere between 60% to 90% for winning trades.
The popularity of binary options grows everyday because of its simple choice of whether the market is going to be up or down at the end of a time frame, with any particular asset. These assets can be anything from indices, Forex, commodities and stocks.
Where there is great reward, there is also great risk. When you are trading, remember to never invest more than 5% of your initial investment. So, for example, if you deposit $1000 dollars into your account to start your trading, it is wise to invest no more than $50 a trade.
In conclusion to what is binary options, it’s always best to do your research on which broker you want to use. As binary options gains popularity, make sure you look for brokers that are CFTC (Commodity Futures Trading Commission’s) regulated. Basically this means that when it comes time for you to get paid on your winning trades, you will actually get paid. There are some brokers out there that are scams, so be careful. If you are a United States resident, make sure that you are able to trade on the brokers platform before you sign up, for US residents are limited to which brokers they can trade on.