In 2007, the SEC in the US made Binary Options trading a recognized part of an investment portfolio. Since then, the trading of Binary Options has grown to be one of the fastest and most popular trading activities online.
Attracted by its simplicity, speed and high returns, people from all walks of life have been trading binary options. Anyone with little or no financial knowledge or experience can place a trade and stand a high chance of winning. So, what exactly is Binary Options?
How it Works
Binary Options trading is an investment into the direction of an asset. You are not purchasing the asset itself, rather predicting the direction it will take and will be at the end of a specified expiry time. The asset can be any Stock, Currency Pair, Commodity, or Index and the expiry time can be anything from 30 seconds to one month.
Each asset is given a target price, also known as strike price, and expiry time. You have to decide whether or not the asset will be higher or lower than the target price at the set expiry time. If you predict correctly, your investment ‘in-the-money’ and you receive a return somewhere between 60-85% of your investment. Should your prediction fail, you are ‘out-of-the-money’ and you lose your investment.
The outcome is nearly always binary; your prediction is either correct or wrong, either in the money or out of the money, hence the name Binary Options.
How to Trade
Choose an Asset – a Stock, Commodity, Currency Pair or Index
Choose the Direction – Will it be higher or lower than the strike price
Choose the expiry time – Anything between 30 seconds to one month
Choose the amount to invest – The amount varies, anything from $1 – $1 million dollars
Is it Gambling?
Because of the simplicity of Binary Options trading, there have been many comparisons to casino gambling. However, there is much more to trading binary options than just making a coin-toss type prediction. As with all financial trading, the application of some knowledge and strategies will greatly increase your chances of long term trading success.
It is important to take the right approach to binary options trading and treat each trade as an investment and not a bet. Research the markets, use trading charts and study your assets and you will find Binary Options is both nothing like gambling in a casino and a form of investing that can reap long term rewards.