Binary options trading is a very exciting potential high risk high reward form of trading options. One of the draws to binary option trading is that in the time that it takes most contract options to expire usually one hour, you can make a substantial return on your investment. Exciting for some but may be too risky for others given the different types of personalities of investors. Neverheless regardless of whether you are a conservative or a risk taker binary option trading can be exciting and lucrative.
Before you can understand how to trade binary options you must first have an understanding of exactly what a binary option is and how it works. Simply put a binary option is when a trader purchases a contract on an under asset and tries to predict whether the assets value will increase or decrease over the life of the contract. If the value of the asset increases at the end of the contract you will be considered in-the-money and if the value has declined at the end of the contract you will be considered out-of-the money. And just for the record I'm sure that the phrase in-the-money is much more appealing to you and is fairly self-explanatory.
Here for example is how it may work. Let's say for the sake of this example that you are an online trader. You would go to one of the many binary options brokers websites and select an asset that you are interested in. You would then find the contract on that particular asset, purchase either a call contract if you believe it will end higher or a put contract if you believe it will end lower. A majority of binary options have an initial starting length of one hour. You can purchase option contracts generally up to 5-15 minutes before they expire but the major start at one hour in length. Within that one hour time span your asset will most likely fluctuate up and down in value (price) but this has no relevance on whether you end up in the money or out of the money. The only thing that matters is the actual value of the asset at the expiration of the Contract.
When your contract matures or expires if you've selected the correct option you will be considered in the money. Most ROI's (Return on investment) for binary options range between 150% up to 185% of your initial investment. Here's an example for you. Let's say you purchased a call contract for $ 500 on a new hot tech company currently at $ 85 per share with a one-hour maturity date and a 160% payout. If at the expiration of that contract this new hot company was at $ 86 you would be in the money and would receive a return of $ 800. That's a $ 300 return on your investment in a one-hour span. Can you see how this can excite your everyday trader? Obviously there is risk to every investment and you could have just as easily finished out of the money with no return on investment and a major of your initial investment would be lost. You must due your research in order to make educated investment decisions.
Either way you view binary option trading it is a very exciting form of trading. Whether you are a part time recreational trader or a full-time investor, options trading can be very lucrative at any level of experience.