Definition of Binary Options Trading

Binary options are also referred to as Fixed Return Options (FROs), digital options, binaries and all-or-nothing options. Each name stressed the 0-1 nature of the options. This nature suggests that there will be only two expected results to a binary option. In addition, the two expected outcomes are well understood by the trader at the time of purchasing the option.

Although they seem comparatively new, they have been traded for almost over a decade now. Initially, they were traded over the counter, usually amid two institutional investors, and investment banking prop desks. Retail investors got the rights to trade binary options in 2008, and since then, this asset class became more popular. Here are the reasons why you should start trading binary options.

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Benefits of trading binary options

  • They are an easy risk-reward proposition, which is known and clearly stated before starting the trade. Usually, trading sites place a return percentage of almost 60% – 90%, in case of winning the trade and a 0% – 15% return of capital in case of losing the trade. Binary options signals are generally offered on a number of underlying assets across several trading platforms.
  • Another advantage of binary option trading is the super quick expiry time, like 60 seconds or longer times like the End Of Day, Next Day or the next week or even the next month.
  • Another plus point of trading binary options is the fact that you can create very effective techniques and money management strategies, because of its binary character. As per the number of trades and the winning ratio, you can make very accurate calculations of your earnings.
  • The simple nature of trading is another benefit. Here, you only have to predict the correct movement for a particular period of time. Also, your profit is fixed irrespective of the units by which the market moves. The profit is exactly the same, if the market moves only by 10 units or by 80 units.

What is different about trading binary options?

There are three main differences between regular and binary options:

  • Traders are able to make profits instantly, due to short term expiry times.
  • In regular options, a trader pays per contract (i.e. point). As a result, the investor will earn or lose an amount depending on the difference between the number of points between the expiry level and the strike price. However, in binary options, the two outcomes are known from the beginning.
  • Until the future time, an investor must hold onto his option. Thus, one must be more careful while buying his options as they can’t be sold once they are bought.

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