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Binary options 

 

What are the binary options?

Binary options

Binary options are a new and exciting type of investment. They're to buy (call option) or sell (put option) a particular currency pair at a specified price (known as the execution price) at a certain date (expiry date). In order to buy or sell the underlying assets, premium is paid in advance to the vendor of choice. And the use of this option depends on market conditions at the time that the option ends at. Foreign exchange trading options provide the possibility of making profits with as the value of the currency pair increase or decreased.


When buying a binary option a contract is issued to the buyer that gives him (known here as the investor) the right to purchase the asset he wants at a fixed price, within a specified timeframe that is different from the stock market, binary trading is very easy and dangerous at the same time. In this type of trading you can trade options, stocks, currencies, commodities and indices. Binary trading expects the movement of one currency against another. When using binary trading, risk or potential profit for each expectation is clear and known in advance and the contract price is linked the time it is opened at and the time remaining until the end of the contract.

For investors using this option there will be samples of prices during a period of five days, from Monday to Friday, for trading, once daily, according to the method of calculating and determining the price. If it's not published five times during the week, the number of samples will be reduced.

Binary options, also known as options of all or nothing, or digital options, fixed income options (FRO), each one of these names refers to the nature of these options are either yes or no. This is because there are two possible outcomes of the binary option, the investor know both of them before buying this option.


When buying a binary option through the platform the investor should choose the asset he wants, and the expiry date to be applied, and the trend which he expects that the asset will move toward. Asset in question is what will assess the option value of it, and it may be an indicator (such as NASDAQ) or commodity (such as oil) or a currency pair which is also known as FOREX (such as EUR / USD) or a stock (such as Apple), which we already provide about 60 of them. The asset's expiry date imposes the expiry of the contract, and it may be at the end of the nearest hour or end of the day or week or month. The investor then needs to study the direction in which he resides that the asset is moving to. If he thinks it will move upward, he'll then buy option CALL. And if he thinks it would move down, he'll then buy PUT option.


An option is considered as a winner if it ended at a price higher than the original price if the option is CALL.Or less than the original price if the option is PUT. An option is considered as a loser if it ended at a price less than the original price if the option is CALL. Or higher than the original price if the option is PUT.

You can trade binary option through trading platform that the brokerage firm offering the options gives to you. Here's a simple explanation to understand how things are:

Ahmed buys shares of the binary option coca cola versus $ 57 and bearing in mind that in the end of the day shares of coca cola will be higher than the current situation. If correct, we will give him a return of 71% on his investment.

Binary option results:


1 - At the end of the day, if shares of coca cola are already higher than the price at time of purchase, we pay the investor $ 97.47

0 - The stock went down, we will bring the investor back to $ 48.45


This means that when you buy the contract, the investor is aware that it may receive either $ 97.47 or $ 48.45. These values ​​may be much more if the investment is greater. Any investment in shares of $ 1.000 a return of 71% resulting in a return of $ 9.747 or $ 4.845 recovers.


In binary options market there's contravention of the regular options that you can make profit through daily, and not as regular (vanilla) to be profitable on monthly or quarterly basis and be effective depending on the value of the change while the value of the asset is fixed to 60-75% in profit situation and 15% in loss situation.


These differences have consequences:

  • The short ending time enables the investors to make an immediate profit on the binary options and be more flexible with their investments in the option.


  • For vanilla options, the investor pays for each contract (each point). And therefore the investor will win or lose a certain amount by the difference between the final level of asset and the original price. This differs from the binary options, where yield is determined from the beginning.


  • The binary option investor must adhere to his original choice until the expiry date. So he must be careful when buying his options because he can not sell them after purchase.


  • In money, options can lead to a return of 60-71%, depending on the platform and some even offer a return of up to 15% if the option expires out of money.

So the binary options trading via the brokerage companies are considered as a new and interesting way to invest in financial markets. Binary options are more direct and flexible than traditional options, but as is the case with all investments, pre-planning is an important reason for success.


Trading strategies with assets of binary options

Every investor has his methods and binary options trading systems. Strategies described here are a guide that does not fool nor is it an exhaustive list, but they accepted industry methods that are considered useful by many investors.


Reversal strategy (support and resistance)

This concept is based on that, if the assets suddenly move in one direction, they're not likely to remain so, it's more likely that it was just a peak that will move toward its original position, if not all means. Therefore, the investor should buy the option, or put the call depending on whether the price has suddenly risen or fallen, on the assumption that it will be back soon and bring stability. Of course, no one knows when the balance reaches its peak. Thus, close monitoring of the assets and search for what amounted to a peak is vital to infer the possibility and timing of its return.


Hedge strategy

This strategy is more complex because it involves the purchase of each call and put option on the same assets. The assumption is that the spread of assets in a low point and at a high point, so that the region between the two options can have a double success for the investor. Often used when the asset volatility gets high and the investor wants to protect himself. If the end of the subscription is in the price level between the two, it is a perfect strike, but if it falls outside of this parameter, then at least one option will expire out of money. Call and put options must be bought at the same time. This can be done instead of buying an option with a longer period, and the second that was purchased once the direction of assets is more deeply entrenched.

Note that the hedge that spread trading in binary option varies with the vanilla options since the purchase price and the exercise of rights differ between any two countries.

Tapping on the tendon

The most strategy that works based on the common sense. The idea is that the impact of a particular effect on an asset will have an impact on another asset. For example, the stock price may be affecting higher or lower on the price of another index. Or if the exchange rate in a country depends heavily on a particular asset, then it may change the price of commodities that affect the exchange rate in the country. The key here is to understand the influence between assets and be prepared for the movements in any of them.

This means, for example: As it is well known in the financial markets that the rise of the dollar influence gold in reverse, if we assume that the gold has risen, we can sell the dollar assets.


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