Guides

Binary options guides

A binary option is a simple method of investing in the price of an asset going up or down. So if an investor thinks that shares in Vodafone (VOD) will rise in value, they can take out a binary option to buy (place a ‘call’ on) Vodafone. If the price is higher at the point the option expires, they will receive a payout of between 70% and 95%, but if they are wrong and the price falls, they will lose their entire investment. So a £100 option could return £195, or £0.

How to open a binary option;

  1. Identify the asset to trade
  2. Decide if the value will rise or fall
  3. Identify the expiry time (The time the option will end)
  4. Decide on the size of the trade or investment

After that, it is a matter of waiting to see if the value of the underlying asset does move in the expected direction. Layers of complexity can be added as a trader becomes more advanced, but those are the basic elements of trading binary options.

This clarity is one of the attractions of binary options trading. Both the level of investment, the risk, and the level of returns are known as soon as the option is taken. There is no leverage on the investment, and the specific value of the price does not effect the eventual returns. Just whether it has risen or fallen.

Binary options are available on a range of different assets. Stock, foreign exchange rates (forex), indices or  commodities (such as oil  or gold). There are then a range of durations (referred to as the expiry time) over which the binary option will last. These range from 30 or 60 seconds to as long as week or longer in some circumstances. So a trader simply needs to pick an asset, a time horizon and decide whether the price will go up or down.

How much can be won on a binary trade?

The payout on a specific trading option will depend on the underlying asset and the duration of the option. Generally, binary options pay out within a range of 70% to 95%. This percentage is made clear before the trade is made. Other than being higher or lower than the starting price, the closing price will not affect the magnitude of the payout. This is the significant difference between binary options trades and the majority of other investment vehicles.

What types of binary trade are there?

  • By far the most common type of binary option is the simple up/down or high/low type. This is the simple prediction of what direction the price will take during the duration of the option. At the point the option expires, will the price have gone up or down?
  • A slight variation to the up/down trade is the above/below option. It follows exactly the same principals, but where an up/down option will start at the current value of an asset, the above/below value will be set somewhere else. All the same logic applies of the price rising or falling from that value, and where it will be at expiration – but the starting point will be somewhere above or below the actual value at that moment.
  • Touch / No Touch is a slightly more complicated scenario. Here, a value or price is set (sometimes by the investor themselves if their broker offers a feature such as ‘Option builder’). If the real world price touches, or goes through that barrier, then the ‘touch’ option would payout. If the price never touches the barrier price, then ‘No Touch’ would payout and any ‘touch’ bets would lose.
  • In / Out, ‘Range’ or ‘Boundary’ trades require two barriers to be set. One will be higher, and the other lower. The binary option is then whether the price will stay ‘in’ (or between) these two boundaries. The ‘out’ option would be triggered, and therefore payout, if the price finishes outside of either or the barriers set.

While the above are the most common option types available, there are others. The key theme they all share however, is that the outcome will be binary – Yes, or no.

How to start trading binary options

The best way for any novice traders to get involved in binary options trading is to open a demo account and get a feel for trading binary options without having to risk any money. Visit our demo account pages here. Alternatively, head straight to our list of regulated binary options brokers, where you can see reviews, the highest level of payouts, minimum deposit, minimum trade information, whether they are regulated (and by who), details on withdrawal methods and a list of the assets they have available.

Binary.com logo Open Account
Payout: 91%
Min Deposit: £5
Bonus: Exclusive £20
Regulation:  Yes

Introductory guides;

binary options signals What are binary options?
Boundary binary options Boundary Binary Options – Profit whether markets are flat or volatile
Binary Options ladders Ladder binary options – Target larger payouts on volatility
Touch binary options explained One Touch / No Touch binary options explained

 

Charting and technical analysis guides;

Binary Option charts strategy Binary options chart analysis
MACD chart explained MACD Charts explained – Profit from technical analysis in any market.

 

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