binary options trading platform

There is an upside to these trading instruments, but the upside requires some perspective. A major advantage is that the risk and reward are known. It does not matter how much the market moves in favor or against the trader, there are only two outcomes: win a fixed amount or lose a fixed amount. Also, there are generally no fees, such as commissions, with these trading instruments (brokers may vary). The options are simple to use and there is only decision to make: is the underlying asset going up or down? There are also no liquidity concerns because the trader never actually owns the underlying asset, and therefore brokers can offer innumerable strike prices and expiration times/dates which is attractive to a trader. A final benefit is that a trader can access multiple asset classes in global markets generally any time a market somewhere in the world is open.

At first glance, it seems like an easy way to get rich, yet there is a downside and one point in particular which violates what is often considered a cardinal trading rule. The major drawback of binary options is that the reward is always less than the risk. This means a trader must be right a high percentage of the time in order to cover losses. While payout and risk will fluctuate from broker to broker and instrument to instrument, one thing remains constant, losing trades will cost the trader more than they can make on winning trades.

binary options trading platform

binary options trading

Binary options are classed as exotic options, yet binaries are extremely simple to use and understand in terms of functionality. Providing access to stocks, indexes, commodities and foreign exchange, the options can also be called a fixed-return option (or FRO). This is because the option has an expiry date/time and also what is called a strike price. If a trader wagers correctly on the direction of the market and the price at the time of expiry is on the correct side of the strike price, the trader is paid a fixed return regardless of how much the instrument moved. A trader who wagers incorrectly on the direction of the market ends up losing a fixed amount of her investment or all of it.

If a trader believes the market is going higher, he would purchase a "call". If the trader believes the market is going lower, she would buy a "put". In order for a call to make money, the price must be above the strike price at the time of expiry. In order for a put to make money, the price must be below the strike price at the time of expiry. The strike price, expiry, payout and risk are all disclosed at the outset of the trade. The payout and risk may fluctuate as the market moves, since a call that is "in the money" by a great degree stands a good chance of finishing in the money if there is a short time to expiration. Yet, the pay rate out and risk that was locked in by the trader when the trade was taken will stand at expiration. This means different traders, depending on when they enter may have different pay outs.

binary options trading