Understanding binary options is not an elusive task. It is a kind of speculation in which the price of speculation is represented between 0 and 100. If the bet event goes successful, then the settlement is made at 100; otherwise, the settlement is finalized at 0 indexes. However, the price of the event is marked by the binary options brokers. If you envision that the event will occur, then the call (buying the event) option is made, else the put (Selling the event) option is accomplished. This can be best explained by the examples given below.
If you anticipate that the McDonalds' stock will close above the spot price at $80.52 within an hour, then you shall go for the binary call option and invest $100. If anticipation turns to be successful, the payout will be 70% or more i.e. $170 or more. If the McDonalds' stock does not close above the stock price, then you lose 85% of your investment and only get $15. This is the key benefit of binary options trade, as before you commence your trade, the risk of losing some percent of investment and opportunity of earning a profit is known to you exactly.
Important Concepts in Binary Options Trade
In order to perceive binary options trading strongly, understanding of following concepts is essential:
Price Barrier:It is the strike price at which the trader can purchase or sell the underlying asset.
Expiration Date:The time period in which an option closes or expires.
Types of Binary Options
Following are the different types of binary options trades, bearing same principles of trading with slight variations:
High/Low:
This type of trade is all about choosing a call or put option. If a trader assumes that stock will end up with the price above the strike price, then he chooses a Call option. And, if a trade forecasts that the stock price will show a downward trend within the expiration date, then he purchases down option. However, this may be referred as Rise/Fall trade at some trading platforms.
In/Out:
This type of trade is also referred as tunnel or boundary trade. In this kind of binary options trade, the trader sets the price range in order to trade the price consolidations and breakouts. The trader then purchases an option, predicting whether the price will abide by the tunnel, boundary, or price range that is 'IN', or if the price will escape through the tunnel range (OUT). Nevertheless, usage of pivot points would be a great help in such kind of binary options trade.
Touch/No Touch Options:
In this type of trade, predictions are made about whether the anticipated price will touch the price barrier or not. Particularly, in Touch binary options trade, the trader purchases an option with anticipation that the market price will touch the target price within the expiration time period. If this is correct, profit is made; else the trader is ended up with the loss. No Touch binary trade is exactly opposite to the touch binary trade. In this kind of trade, trader speculates that the target price will not touch the market price of the underlying asset. If the trader is successful with his apprehension, then the in money settlement is made and profit is generated.
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