Trading in the different options of the stock market may seem confusing to most people. One of the most popular investment tools is binary options. The reason why it has been able to attract many users is its simplicity. However, it is this very quality that makes it a high-risk investment tool too.
What is binary trading?
Binary trading can also be called ‘yes or no’ trading as it means choosing one or the other option. It involves predicting whether the asset is going to be higher or lower than the purchase price at a specific time. Predicting that it will be above the set price means yes and predicting it will be lower than the set price would mean a no.
The good part about binary trading is you are always aware of the time frame, risk and reward of each trade as it is predetermined.
Reward and risk involved
The reward amount for a successful trade or prediction would be indicated as a percentage of the amount invested. It can be anywhere between 60% to 85% of the investment or even more sometimes. This means that if the trade is successful you would win the indicated return amount in addition to the original investment amount.
On the other hand, an unsuccessful trade means that you will lose the entire investment amount. Some traders may offer a return percentage even for a loss.
Basic terminologies of binary trading
In binary trading, the trader does not own the assets. They simply predict about the movement of the asset. Given below is a list of the most commonly used terms in binary trading:
Current price refers to the real-time price of an asset.
Strike price can be defined as the price of the asset at the time it was purchased. This price will determine whether you have a successful trade or not. If you want the trade to be successful the asset must close above the strike price.
The term Call is used when a trader predicts that there will be an increase in the value of the asset. The new value must be higher in comparison to its strike price at the expiry time.
The term Put is used when a trader predicts that there will be a decrease in the value of the asset. The new value must be lower in comparison to its strike price at the expiry time.
The date and time when the option ends are called the expiry time. It is the time between the purchase of the option till the exact time that the contract ends.
Binary trading need not be an overwhelming task for those who are just starting out. One such resource to help them in the process is Fintech LTD which is a binary robot. This controversial tool has been designed to automate the trading process.
Binary trading has some great opportunities for big earnings but this is accompanied with the danger of substantial losses. It is important to have the right information about it to make the correct trading decisions.