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Binary Options Trading Introduction
They are basically options which the payoff can be either a fixed amount (usually a fixed return percentage) or nothing at all (some brokers do offer up to 15% rebate back), only two possible outcomes.
At Around 2008 many websites started offering a simple and easy version of binary options trading that caters to novice and experienced investors.
Binary options are also known as fixed return options, all or nothing options and digital options.
Binary options trade simplified example
An investor predicts that the EUR/USD index (underlying asset) will go up (call option)
The investor decides that the index will go over X at a certain time (expiry rate) and invest.
If at the expiry time the asset will trade at over X a payment at the return rate will be made (profit)
If at the expiry time the asset will trade lower than X then no payment will be made and the initial investment is lost. (loss)
So, the investor should only choose if the price will be higher (call option) or lower (put option) at the set expiry time which can range from a few minutes to a day.
There are also trades on range of prices so an investor can decide whether a price will be at the expiry time between a certain price range or outside of a certain price range (any price inside or outside the range will qualify as a profit depends on the trade)
If the price hasn’t changed at the expiry time, the full investment is returned to the investor.
Commissions, fees & profits
Unlike the stocks exchange, the binary brokers and platforms do not charge andy fees or commissions from their invesotrs.
The profit for in the money expiration is usllay between 61%-89% of the investment depending on the asset traded.
The rebate for out of the money expiration is usually between 0%-15% on the initial investment, again, depending on the asset and broker.
How to judge the fairness of a binary broker
- Withdraws are finalized in 3 business days and money in the bank in 5 business days.
- Make sure the broker makes the investors trade against other investors (put option vs call option) and not against the broker.
- Trading volumes are high
- Pricing quotes are from a well-known and reliable source like Bloomberg or reuters.
- The binary options site offers the same put and call option price for the same asset and expiration.
- Read our binary broker scam review for more criteria and pick the right broker for you!