Binary option is a one of the simple and common type of derivatives, where the payoff is either a certain amount of prescribed cash, called cash-or-nothing option, or shares, called asset-or-nothing option. Intuitively, cash-or-nothing option holders receive cash if the option finishes in the money, asset-or-nothing option holders receive shares of asset if in the money, thereafter binary options are often named as digital options.
The pricing of binary options is straightforward under GBM framework, the widely used Black Scholes formula can be easily adopted for its valuation. Once we understand the principle and know how to price it, the next step probably is to trade the products in financial markets. There are several online option trading platform for an individual investor to choose, most of them have revolutionized the way binary options are traded on the internet today, by supplying their customers with a simple, exciting, dynamic and highly profitable trading platform, which is very different from traditional option trading. Due to the simplicity and speed of those binary options trading system and the minimum minimum investment amount, investors are able to trade those products all over the world. Ranging from sophisticated investors that are looking for ways to hedge their positions in the traditional market, to amateur day traders looking for some "action" without risking large amounts of money, there are suitable systems to most of everyone's goals.
You simply choose whether the stock price will go up or down by the expiration time and place your call or put depending on the trading platform. Most of the case your winning return is fixed, you do not have to leakage millions of dollars with every trade or setup complicated stop loss strategy. Everything you need is right in front of you.
Please read my binary options trading story and recommendation of online option trading platform.
Source by Bill Goo