Binary options' trading is becoming more popular than ever because it is a straightforward method of trading. One can gain profit from the process, even those not expert in trading secrets or methods. Conversely, an inexperienced trader can lose everything in less than an hour if they are just rolling the dice.
Binary options' trading varies in type: a cash-or-nothing trade will pay a pre-determined fixed amount of cash if the option expires while "in the money" or or there is the asset-or-nothing type of options trading that pays the underlying value.
A binary option dealer will readily offer a reward usually in the form of a bonus cash payment on contracts held or amount deposited. These are often given as a sweetener with an initial or first-time investment. This so-called sweetener can be used to create profits without using your own cash.
Binary options are a fairly new method of trading the global stock markets. However, the trading of the underlying contracts that are sold directly by the issuer to the buyer has been around some time.
How a binary trade works:
Let's say you were considering buying binary call options for the underlying shares of a company such as Microsoft or Apple. Now, if the expiration time is reached and the stock is trading above the price it was at when you bought the option, you'll get the pre-defined payoff for your contract. If the stock is trading below the share-price from what it was when you bought the call option, you will get nothing. This is the cash-or-nothing call where "in-the-money" traders are making more than 50% profit when their picks are correct. When their picks are wrong, they lose the entire investment. Risk does not get higher than this for inexperienced investors. Those with experience often know the trades to avoid so they do not lose as often as an inexperienced trader.
The US-style binary options are out there in the market but are often referred to as "one touch options". The "binary" term has received more respect in the US since being approved by the SEC in 2008. Binary options are sometimes referred to as "European" options since this style of trade began its popularity in Europe. Binary in nature due to two possible outcomes for every acquisition of an option position – win or lose. In some statistical points of view, this gives the investor a 50/50 chance of winning, but more technical analysis tells an experienced trader that the odds change every minute.