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Beginners Guide to Binary Options
Nowadays Binary Options is very popular among user. The majority of the users think that it is the easiest way to earn a huge profit over a night or may in a week. If you’re the one who is new in binary options trading and know nothing about it, then we recommend you to read our this article about Binary Options.
We are not giving you any guarantee that you will become professional in Binary Options trading after reading this article, but it is confirmed that all your doubts related to binary options trading will be cleared and you will be able to make right decisions while doing trading.
So without wasting any second why don’t you start reading about Binary Options?
Best Binary Options Trading Robots 2020
What is Binary Options?
Binary Options may be mysterious for the users who don’t have complete knowledge about it. But the truth is that it is very easy to use with the functionalities they provide to investors. With the help of Binary Options, you can trade with stocks, currencies, indices, and commodities. Unlike traditional investment programs, in the industry of binary options, you don’t obtain the asset you trading with.
There is a different type of binary options and one of the most popular types is the high-low option. The good thing about it is that it involve the type of expiration time and asset. The amount you will get in return is fixed and you will find out what you will get at the time of expiry. You can read more about Binary Options on Investopedia.
You just need to calculate the direction in which the cost of the instrument which is effected by different financial indicator, market volatility, and economic changes will move.
In Binary Options the trade always ends up in two different ways:
In The Money (ITM)
This means that the forecast you have made about the trade is correct and has gone in the direction. Suppose you’re dealing with Apple Stock and you think that the price of the trade at the time of expiration will be higher. Now you will set your investment amount for the trade and wait. If the cost of the trade is higher in comparison to the one at beginning, then trade ends ITM.
In Return you will get the profit from the broker with a fixed return rate.
Out The Money (OTM)
Now what this means is that the prediction you made is wrong and at the time of expiry the price of the asset gone in opposite direction of your prediction. Let’s us take the example of Apple – What you predicted is that at the time of expiry the cost of the asset will be higher. But at the time of expiry, your asset price dropped. Now this means that your trade ends at Out The Money (OTM) and you have to face loss.
Benefits of Using Binary Options
There are lots of reasons why users are attracted toward binary options, but the reason we personally like about this type of trading is that the precise amount of decrease or increase in value is irrelevant, and you always have an idea about how much the losing trade going to cost you and how much profit you will receive when you will win the trade.
What is Binary Options Broker?
Binary Options Broker are the one who provide you platform for trading. If you check the internet, you will find that the internet is full of Binary Options Broker. Every broker gives you different trading options with different numbers of advantages or benefits. Daily a new binary options broker born in the trading world, but as per our knowledge there are more than 600 different brokers and most of them operate worldwide while other has some geographical limitations (like is available in US, UK or Canada)
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The number of these Binary Options Broker is increasing day by day and due to which the competition between them is also increasing. Now, this thing is really beneficial for investors. Due to the competition, these brokers will find unique ways of trading and interesting features that will help traders while doing trading.
Importance of Binary Options Broker
One of the most important parts of trading is to select the broker because all your future trades win or lose will depend on him. It is the duty of every broker to suggest a right path to investor and help in earning a maximum profit with his knowledge.
Tip: If possible always create multiple accounts with multiple brokers so that you can grab maximum profit from all of them. This technique always helps you in overcoming your loss which you face due the losing trade or your broker is not performing well. Such scenario is possible with Option Robot.
Always keep in mind that there are lots of brokers exist over the internet that assures you that they are licensed and regulated. But the percentage of the real broker is very less, even most of the brokers are fake or SCAM. So before trading with any broker it is recommended that you must check your country’s financial authorities to confirm whether they’re regulating a certain broker or not. For example, Nadex is the only broker in USA which is regulated, so trading binary options in US is very difficult and risky due to low number of regulated brokers. By using unregulated brokers for binary options trading, basically you are gambling on gambling on binary options.
What is Binary Options Robots?
Binary Options Robots a.k.a an Auto Traders. The aim of the Binary options robots is to help you in getting more profit. Binary Options Robots are highly beneficial for novice traders who are new into trading and don’t know much about it.
It is a kind of application or software which run in your system background, examine, and outline huge amount of data which is available or fetched by analyzing the market moments and trends. How your binary options robots going to work totally depend on the algorithm or on the developer of the software. The more experience developer has about trading, the best algorithm he will create for the trading software and more Winning rate you will get.
What is Binary Options Signals?
Binary Options Signals is an outline of the information which you will require to make a decision about the trade while doing trading. These signals are used by Binary Options Robots to execute the trades. No matter about what you are trading in you can get a signal on a particular asset. The signal always alert you with a percentage that shows how far a given outcome will be reached.
Let take the example of gold. You have to select whether its price will go down or up. The Binary Options Signal will give you the percentage (let say) 89% of going it up at a time of expiry. Now this means that the possibility of predicting right if you really trust the signal is 89%.
Signs of Fake or SCAM Binary Options:
There are lots of Binary Options Trading Software available over the internet that is fake. So please follow below tips before selecting any Binary Options Software, and Broker:
- Avoid trading software who assure you 100% Winning Rate because it is not possible in trading.
- No binary options broker can make you rich over night so avoid these type of SCAMs.
- If Possible always starts with a demo account to analyze the trading system before actually investing in it.
- Always check the trading software or broker before creating an account. We time to time expose the fake Trading system. So keep checking our site for latest SCAM.
How to Start with Binary Options Trading System:
You just need to follow few steps to get started which are listed below:
- Visit the official website and register (Go for demo account if available).
- Select the Binary Options Broker to get started.
- Add minimum deposit into the account of broker to start trading (Minium deposit is $250 in most of the trading software).
- Check the binary options signals and start earning profits.
If you have any query or question related to Binary Options let us know in the comment and we would love to help you out in answering your query.
Binary Options Academy for Beginners – Binary Option Trading 101
Education and experience are the main constituents that ensure success in any venture. The same holds true for binary options trading as well, unless you are among the lucky few individuals who can make a considerable amount of profits out of sheer fortune alone. However, don’t entrust your savings on blind luck, as even the luckiest gamblers in the world face massive losing streaks from time to time. Binary Options trading does not reward gamblers, or luck for that matter, unless traders are willing to take calculated risks in their trading decision.
As a beginner, it is imperative for traders to be well-versed about their investment opportunities, and have a thorough knowledge of the different aspects of binary options trading and the trading strategies in general. Our innovative binary options training program is designed for beginners and traders who are just starting out in the industry and provides comprehensive information on all aspects of binary options trading. Our binary options guide for beginners is designed to offer a relaxed learning platform that reduces the learning curve for all types of traders, irrespective of their trading expertise.
Beginner Level Table Of Contents:
Getting Started In Binary Options Trading
It is relatively easy to get started in binary options trading and does not usually involve any complicated procedures. Unlike the traditional financial markets, traders can open a binary options trading account for a very small initial investment, with several binary options brokers offering their services for a very insignificant amount. The average investment required for a binary options account is $250, but some companies offer binary options products and services for a small investment of $1.
There are countless binary options brokers in the market that cater to beginner traders, and we have reviewed some of the leading and reputed companies in the market to offer you the best option for your investments. You can open an account within minutes, and make a deposit to your trading account using multiple online payments. Some brokers may also require its traders to send in verification documents before commencing trading, while other brokers may request for identity proofs and other documents at the time of withdrawal.
Nevertheless, traders should make it a priority to open a demo trading account and practice their trading strategies before putting real money on the line. Beginner traders are largely unaware of the dynamics of the financial markets, and even though it may be exciting to dive into the markets without any precaution, you should consider the implications of losing a significant chunk of your trading capital within the matter of a few seconds. Therefore, we can’t stress the importance demo trading enough before commencing your live trading journey.
Grasping The Different Concepts & Components In Binary Options Trading For Beginners
As a first step, traders must learn binary options trading by understanding the different terminologies and concepts used in the exotic financial market. Binary Options trading involves making a call or put option to bet on the movement of the market. The call option is simply the possibility of buying an underlying asset in the hope of the price going up, while the put option is the option of selling an underlying asset to take advantage of the price moving down.
Binary options trading has only two outcomes and is entirely different from the traditional forms of investing. In conventional FX, CFD, and Stock trading, the profit and loss of trading are determined by the money invested in a trade, the magnitude of movement, and the cost of trading. On the contrary, binary options trading has two outcomes, a fixed ROI for in-the-money trade and a loss of the entire invested capital for out-of-the-money trade.
Binary options trading is a unique concept in financial investments that involve different components that contribute to the overall trading environment. Traders will have to understand the core trading attributes such as expiry times, payouts, binary options products, entering trades, exiting trades, rollover, double up, and refunds, in order to ensure clarity of trading. One must only attempt to trade the markets after gaining a proper understanding of the multiple components and concepts in binary options investments, which can indeed pave the way for deeper market analysis and enhanced success in trading.
Trading Strategies & Money Management
Although the binary options market has a very straightforward concept that basically comes down to a call or put option, there are multiple strategies available in the markets that are aimed to offer different trade outcomes. Not all trading strategies are guaranteed to be profitable, as it depends on a wide variety of conditions. One trading strategy might be profitable for one trader, while the same strategy may not work for another. It depends on different trading factors such as the psychology of the trader, market conditions, money management, and trade management. The strategy can also vary depending on the underlying financial instrument, the expiry times, and the type of analysis performed by a trader.
Even if a trader is disciplined in his/her approach to learning by keeping track of all the technical analysis, fundamental factors, and the different strategies in the market, he/she can only enjoy profitable trading by exercising proper money management and reducing the risk by controlling the capital outflow. A trader can gamble a huge sum of money and win quite a few trades consistently, but that doesn’t make him/her a complete trader. In stark contrast, a trader that can be profitable despite having a string of profits and losses in their account can guarantee of long-term profitability without succumbing to severe account drawdowns.
Money management is a result of extensive practice, emotional strength, and a capability to withstand market pressures without acceding to greed and emotional instability. A majority of successful traders in the market stress on the importance of having a trading plan, and being able to stick with it, despite the adverse market conditions. At times, even the most lucrative trading strategy won’t work, but it is up to the trader to go in and tweak their strategies to get back to their winning ways. Of course, during times of drawdown, a trader must have the strength and the tolerance to keep the losses to a minimum, which can indeed help in preserving the trading capital for taking advantage of the winning streaks in the future.
Inherent Risks Of Binary Trading
It is essential for traders to know the risks of binary options trading before investing. There are multiple risks associated with binary options trading and is not exclusively reserved to losses incurred in trading. Other risks include loss of trading capital due to broker scams, loss of money due to faulty trading signals, losses induced by trading platform malfunctions, and outright financial malpractices perpetrated by trading companies. Each of the risks outlined here is all detrimental to the profitability and bottom line of a trader’s career, as even a profitable trader can find it difficult to acquire profits if faced with adversities.
In our binary options school and training academy, we cover a wide range of risks associated with binary trading. We will not only offer better insights into mitigating risks, but we also give advice into being proactive against financial scams. It is always a better option to take the safer route in the investment market, rather than taking the risk with your hard-earned money.
Binary Options Robots & Trading Signals For Beginners
Automated and social trading is an integral part of the financial markets and is proving to be insanely popular with binary options traders. Automated trading is usually an established trading strategy among professional traders, but these trading concepts can be replicated in a beginner’s trading account for improved profits. Beginners can take advantage of the trading robots, trading signals, and even social trading to enjoy better returns for their trading ventures, all the while using all the binary options learning resources available in our Binary Trading Academy to learn the trading concepts.
How Can Beginner Traders Benefit From Our Learning Resources
All of our binary options tutorials are created with the beginner trader in mind, and can not only make the job of learning easier but can also help traders to stay safe in the binary options market. We cover all the major aspects of binary options trading, which in turn help you to stay informed, despite the uncluttered information that is available through online sources. We don’t want to confuse our readers, and we have taken every precaution to create a feature-rich binary options education program for beginners.
Our beginner binary options training program is not only suitable for amateur traders but can also come in handy for intermediate and even expert traders. During the course of a trading career, it is natural for traders to miss out on several basic concepts of trading. It is also possible for traders to forget what they have learnt from their earlier days of trading, and might want to refresh on some of the beginner concepts in trading. Therefore, our beginner binary options courses should also be of greater assistance for all categories of traders, without any distinction.
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Beginner’s Guide to Options Trading – All You Need To Get Started
When people think of investments, they often think of stocks and bonds. However, when it comes to investing there are plenty of options. In fact, one of the most popular investment vehicles are “options”, which are a special type of financial derivative. We have written this short guide to introduce you to financial options trading. We hope that this short options trading guide will represent your jump-start into the realm of options trading.
Advantages to Options Trading
- Option contracts offer high-profit potential.
- Options allow for high levels of leverage, meaning a relatively small amount of money can produce large profits.
- Options can be written for numerous assets including stocks and commodities.
- Fees are relatively low and affordable.
- Flexible strategies allow traders to raise or lower risk and profit potential.
Disadvantages to Options Trading
- Risks can be quite high, especially for beginners who do not understand the nuances of options trading.
- Options trading can be complex and to take full advantage of the market you will need to utilize advanced strategies.
- As with any financial trading, fees can add up to a substantial amount if you’re not careful.
The above risks are more of a result of knowledge gaps. For example, risks are high with certain options trades. However, experienced traders know how to lower risks.
So What Are Options?
To put it simply, options give you the option to buy or sell another asset. With an option, you have the right -but not obligation- to buy or sell a certain asset at a specified time for an agreed-upon amount. Don’t worry if this doesn’t make sense just yet, we’re going to go through this concept in detail.
An option is a derivative contract. “Derivatives” have earned a seedy reputation since the 2007-08 Financial Crisis. However, a derivative simply refers to a financial asset that derives its value from another asset. Let’s look at how and why options are considered “derivatives.” Consider stocks. They are one of the most common investment assets. You can buy options based on stocks. Because the value of the option is based on a stock, it is a derivative.
So what specifically are option contracts? An option contract will give you the right, but not obligation, to buy or sell an asset at an agreed-upon price on or before the option expires. For example, you can set up an options contract to buy GM shares at $40 dollars a share within one month. On or before that expiration date, you can buy the shares at the agreed-upon $40. You can also choose not to buy them. If you do not buy the stocks, your contracts expire. You would lose the money you paid for them.
There are other financial derivatives that obligate you to buy assets at an agreed-upon price. Futures contracts, for example, obligate a buyer to buy an asset at a specific date in the future for a specific price. Let’s say you buy a future for a barrel of oil for $60 dollars in one month. When the contract is due, you must buy that barrel of oil for $60 dollars, even if the price of oil declined to $50 dollars a barrel.
Before we go any further, it’s important to understand that you can buy options without owning the underlying assets. Later on, we are going to talk about how you can buy “put” options that allow you to sell stocks for a certain price. You do not actually have to own the stocks in question, but can instead settle the difference. This often confusing newer options investors.
Illustrating Why People Buy Options
Let’s say that you believe that General Motors is going to unveil a new electric engine technology in a month, and that it’s going to be a smash hit. You know it’s going to be big, and you believe the stock market is going to react very positively to it.
So you purchase a call option (we will go over “call” and “put” options later) contract to buy General Motor stocks for $40 dollars a share. Let’s assume that GM stocks are currently selling for $40 dollars. Let’s also assume that the expiration date is in one month. You will have to pay for the contract, and options are usually sold in lots of 100. Let’s assume the contract costs $2 per share. This means that the total contract will cost $200 ($2 X 100 shares).
So, to recap, you’ve bought an option contract for GM shares for $200 dollars. This option contract gives you the option to buy GM shares for $40 dollars a share within one month. Your prediction is right, GM unveils an amazing new electric engine technology.
Stock prices climb to $50 dollars a share over the course of that month. However, you have the option to buy 100 shares at $40. You can execute this contract. For each share, you will receive $10, or $1,000 in total. This is because GM stocks are currently selling for $50, but you have the right to buy them for $40. Now, subtract the amount you spent, meaning $200, and you get your profit. In this case, that’s $800 dollars.
That’s a huge profit for a $200 investment. However, if you had been wrong, and GM stocks sunk, you would have risked losing your entire investment. Let’s say GM stock prices dropped to $35. At this point, your options contract would be worthless and you would have lost $200. If stock prices dropped to $39, you could have exercised your options. You would have lost $1 dollars per share, or $100 dollars in total. This is less than a $200 dollar loss but is still quite substantial.
Let’s Dig Into What An Options Contract Looks Like
By now, you hopefully have a solid grasp on the fundamental nature of options. No worries if things are still a bit confusing. Seeing the actual structure of an option contract often helps clear up lingering questions and misunderstandings.
Most brokers will present traders with what’s called an “options chain.” The options chain will display the options available for a given security. The options chain will also display the maturity period and premiums, as well as other useful bits of information.
Options chains can be quite intimidating. Take a deep breath! Once you start working with them, options chains are actually quite easy to understand. Let’s go over an Options Chain for General Motors from MarketWatch.com .
Look at the above image. First, option chains are always listed as either calls (buy) or puts (sell). MarketWatch conveniently shows calls and puts side-by-side. Starting from the far left, let’s go through each term individually.
On the far left, at the top, we see the “expires” date. This is the day on which the contract expires. You must exercise your option by the end of the trading day on which it expires, or you lose your investment. If the option expires on a Saturday, you must exercise it on the preceding Friday.
For options, this date is perhaps the most important factor. It tells you when the options contract will become worthless. The farther out the expiration date is, the more expensive the option will be. This is because you will have more time to exercise the option.
On the far left you see “quote”. If you were on the actual web page, you’d be able to hover over “quote” to see the symbols for the option. In this case, the first call option would be “GMJ20204220000”. This allows you to identify and track specific options contracts.
Last tells you the price for the most recently posted trade. For the second option, we see that the last trade was $20.70. If there is no recent trade, the price will be listed as 0.00
This shows you the difference between the “last” price and the price from the previous closing day.
Or, volume. Shows you the volume of options contracts traded thus far that day.
This shows the price that options buyers are willing to pay right now. For “GMJ20204220000”, this happens to be $23.45. This is expensive. However, this option gives you the right to buy GM shares at $22 (the strike price), which is far cheaper than the market for GM shares at the time ($45.47). This means you would be able to immediately buy shares for $23.47 dollars less than the current market rate.
This refers to the price at which potential writers are willing to write option contracts. In this case, that’s $23.65. Clearinghouses aim to balance the number of sellers and buyers. The writer would receive a debit for writing the contract.
Side Note: Bid & Ask In Practice
Usually, there is a bit of back and forth negotiation in order for a sale to go through. If you want to buy a contract and see that the current “bid” price is $23.45, you might try bumping it up a bit (i.e. $23.55) in order to secure a transaction.
Or, open interest. This refers to the total number of open contracts for the option on any given day.
The strike price refers to the price point at which you have the right to either buy (call option) or sell (put option) the underlying asset. In this case, the underlying asset is GM stock. If you were to buy “GMJ20204220000”, you would be able to buy GM stocks at $22.
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How Are Options Settled?
Technically, options are settled between whoever bought the contract, and whoever sold or “wrote” the contract (more on that later). In practice, the clearinghouse handles all of the work. There are two ways to settle a contract: physical settlement and cash settlement. This settlement must be outlined when the contract is sold and bought.
With cash settlement, you simply settle the difference in cash. With physical, you have to actually buy or sell the assets in question. In practice, most people with physical settlement contracts will simply sell their contract.
So Why Do People Trade Options Anyways?
Hopefully, options are starting to make sense. No worries if you’re still a bit confused. As you read this guide and work more with options, they will continue to make more sense. However, you might be wondering “why do people bother trading options?” Options are a bit complicated, why not just stick to stock trading?
Let’s go back to the General Motors example. A quick recap: GM is getting ready to launch a hot new electric motor and you believe stock prices are going to jump from $40 per share. You want to invest but you only have $200. You could buy 5 shares of GM. If stock prices jumped to $50 dollars, that would mean that you would make $50 in profit. A $50 profit is great, but it’s a heck of a lot less than the $800 profit you would have secured through options trading.
Options offer a lot more leverage . This means you get more bang for your buck. However, there is a downside…
Trading Options Is A Higher Risk Investment
Options are higher risk investments, although certain advanced options trading tactics can be used to lower risk. Generally speaking, investments with higher profit potential also come with higher risks. Every investor should be aware of this rule of thumb no matter what they are investing in.
Savvy investors will often mix the risk in their portfolio, using a mix of high and low-risk investments. Ideally, higher risk investments will be limited to “risk capital”, or money that you can afford to lose. You need to be aware of the risks with options as they are generally higher risk than most stock investments (penny stocks excluded). However, you saw how high the profit potential for options is in the last section.
So what makes options a higher-risk investment? Let’s go back to our GM example. Remember, we bought an options contract for a lot of 100 GM stocks for $200 dollars. These contracts have an expiration date. You have to exercise your options contract either on or before that expiration date. If you don’t, the contracts will expire worthless, meaning you lose all of the money you invested.
Let’s say your projections for General Motors stock is wrong. GM stocks don’t rise, they drop. GM stocks are selling for $37 dollars as you reach the expiration date. In this case, it doesn’t make sense to exercise your right to buy GM stocks for $40 dollars, because you can actually buy them for less on the market. Instead, your option contracts expire worthless, costing you $200.
Now, let’s say you bought 5 GM shares for $200 dollars instead. Stock prices decline to $37 dollars. This means you lost only $15 dollars. Obviously, a $15 dollar loss is a lot less than a $200 loss. However, remember that in the preceding scenario, in which GM stocks rose to $50, you would have only made a $50 profit with stocks. With options, you would have made $800 dollars.
Ultimately, it’s the expiration date that makes options so risky. The further away the expiration date is, the lower the risks. However, the option contracts themselves will normally be more expensive.
What Is The Difference Between Call and Put Options?
Our GM example used “call” options. However, there is another type of option, a “put” option. It’s important to understand the difference between a call and a put.
A call option gives you the option to buy a stock at a certain price by a specified expiration date. Generally, you will buy call options contracts when you expect prices to rise. In the GM stock example above, you bought GM call options because you believed GM stock prices would rise. (We say “generally” because there are advanced trading strategies that will use multiple trading contracts.)
A put option gives you the options to sell a stock at a certain price. You would buy put options if you believed stock prices would decline.
Let’s say you think GM’s soon-to-be-released sales numbers are going to be abysmal. You think stock prices will decline. So you buy put options giving you the right to sell GM stocks at $40 dollars. You’re proven correct, GM’s stock prices drop to $30 dollars, but you still have the right to sell them at $40. This means you make $10 per put option.
The best put options advisory I have seen currently is James Altucher’s Secret Income advisory program.
This next part can get a bit tricky, especially if you’re still trying to digest all of the above information. In addition to buying and selling both call and put options, you can also “write” options. This means that you can write an options contract for someone else to buy. In other words, you are selling option contracts. This might sound complicated, but in practice your broker will take care of most of the work.
You do not have to own any stock to do this, but you do have to agree to terms. If you own the assets for which the options contract is being written, the contract is considered “covered.” Your assets will cover your obligation. If you do not own the assets for which the option is being written, your contract is considered “naked.” This means you will be exposing yourself to further loses.
Let’s flesh this out with an example. Going back to GM, let’s say that you believe that GM’s upcoming car is going to be a dud. You expect GM’s stocks to either stay about the same or to decline in price. So, you decide to write a call option. Now remember, when you buy call options you want the price to go up. When you write a call option, however, you want prices to either stay the same or to go down.
Do you know why? Remember, when you write a call option, you are basically selling that call option. You don’t want the person to exercise that option, or you’d have to meet the obligations of the option you wrote. If this happens, you would have to agree to sell your stocks to the person who bought the option (or to buy them stock to repay your GM stock debt).
When you write an option you are given a debit. This means you are paid for writing the option. The amount you are paid corresponds with the current market price for the option you are writing.
What Is The Difference Between a European Option and an American Option?
You may come across European and American options. Honestly, most option traders will only ever encounter American options. However, we want to quickly mention European options in case you come across them.
A European option can be exercised only at the expiration date. So if you bought European options for GM stocks, you would have only been able to buy the GM stocks on the expiration date. So if GM’s stock rose to $46 dollars two weeks before the expiration date, you would not be able to exercise your option. If GM’s stock then declined to $36 dollars on the expiration date, you’d be out of your money.
An American option, on the other hand, can also be exercised at any point before the expiration. So, you could have exercised your American GM options when stock prices rose to $46 dollars, locking up a profit. Most options traders prefer the flexibility of American options and thus trade with them.
Please note, the underlying asset does not affect whether it’s an American or European style option. You can buy European options for American stocks and assets. You can also buy American options for European stocks and assets.
Binary Options- Exotic and Interesting
Another type of option you may come across is called a “ binary” option . These options are not particularly popular in the United States and is heavily regulated. As a result, few American brokers offer them. However, they are becoming more popular in Europe.
Anyways, a binary option refers to an option with a simple “yes or no” proposition. “Yes”, the value of the underlying asset will be above a certain price by the expiration date. “No” it will not. So let’s say you buy a binary option for GM. Let’s assume that GM is currently trading for $45 per share. You believe GM is going to make a big announcement in a matter of minutes. So you buy a GM binary option that states that GM will be trading above $46 in one hour.
If you are right, you will be given a fixed payout that will be expressed in terms of a percent. Let’s say the payout was set at 70%. You would get your initial investment back plus 70% (watch out for fees, however). If you are wrong you lose everything you invested.
Conclusion: Options Offer a Great Way to Diversify But Your education has just started
This article only scratches the surface of options trading. There are many advanced trading strategies and concepts that you can start to use after you master the basics. For example, “ iron condors ” and “ butterfly spreads ” allow you to produce a profit during horizontal markets. This means prices are moving sideways. There are only a few ways to produce profits during such markets, but options make it possible.
There are also a variety of tools you can use to crunch data, plot out Probability of Profit (PoP), and other things. Then there are the “Options Greeks.” You will be able to use the Greeks to build your own trading strategies.
Remember, the risks associated with options trading can be higher than stock trading in some cases. In other cases, you can use options to lower risk. What’s important is knowing what you’re doing and why you’re doing it. By approaching option trading with smart and savvy you will increase the likelihood of success!
Finally, education is an on-going project. By reading this article, you’re off to a great start. However, you should continue to study up. When it comes to investing, knowledge is profit.
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