Binaries are also known as all-or-nothing options, digital options, or Fixed Return Options (FROs), each name stressing the 0-1 nature of the options. This is because there are two possible outcomes to a binary option, both of which are understood by the investor prior to purchasing the option.
1 – If at the end of the day, Microsoft is indeed higher than at the time the option was purchased, then we will pay the investor a $ 17.10 payout
0 – Should the shares be lower, then we will refund the investor $ 1.50
This means that when the contract is purchased, the investor knows that he will receive either $ 17.10 or $ 1.50. These values will obviously be much greater, the larger the investment. An investment of $ 1,000 with a 71% payout will result in a $ 1,710 payout or a $ 150 refund.
What is unique about trading binary options?
There are three major differences between binary options and regular (known as vanilla) options:
These differences have several consequences:
1 The short term multiple expiration times means investors can make an instant profit on their fixed return options and are more flexible in their option investments
2 In vanilla options, an investor pays per contract (ie point). Subsequently the investor will profit or lose an amount depending on the number of points difference between the expiry level and the strike price. Unlike in binary options where the two options are set from the start
3 An investor must hold onto his option until the expiration date. He must therefore take more care when purchasing his options as he can not sell them once they are purchased
Trading binary options is a novel and interesting method of investing in the financial markets. They are more straightforward and flexible than traditional options but as with all investments, planning ahead is an important part of succeeding.
Binary options are an exciting new type of investment. Rather than purchasing the asset itself, investors can speculate on which direction they estimate an asset will move in. When a binary option is purchased on our platform, a contract is created which gives the buyer (known here as the investor) the right to buy an underlying asset at a fixed price, within a specified time frame to us, the seller.
Source by Eugene O Jameson