Explaining Binary Option

Explaining Binary Option

A binary option is a financial option traded on an asset or market. A typical example is a commodity value, foreign exchange rate or stock price.

Binary options are base on either a ‘yes’ or ‘no’ proposition, on the premise whether an underlying asset will be above a certain price at a certain time.

Trades usually places a wager, on to whether it will or will not happen. So, if a trader believes the price of a currency or commodity will be above a certain price at a set time, the trader buys the binary option. On the contrary, if the trader believes it will be below that price, the trade then sells the binary option.

When it comes what exactly is the main difference between a traditional investment and binary option, it is the clear identification of risk and reward before a trade is committed.

In binary option, an investor will know exactly how much is at risk, and importantly, also know the exact value of any potential returns. Which is not the case with traditional investments, where the ultimate levels of profit or loss are not known until the trade closes.

As with other investments, the trader must first decide if they think the value of the asset they are trading will rise or fall. Hence, the degree of the price change is not important, and the trader purely speculates on whether the price will be higher or lower than the current price, at a specific time in the future.

 

Risk Warning: “Your capital may be at risk. This material is not investment advice.”