What Are Binary Options

April 2, 2015 12:47 pm

Binary options is a relatively new investment phenomenon also known as fixed odds, digital options, all-or-none or fixed return options. All terms cover the same concept; A trade in which the trader aims to profit from predicting whether the price of an underlying asset is trading above or below a specified level or strike price at expiration.  The outcome of such a contract can have only to possible outcomes – true or false.

Looking at the different terms used to describe the investment type offers a deeper explanation of the concept of Binary options:

  • Binary options means “two options”
  • Fixed return options means that the potential return on the option is determined beforehand, which in practice means that there is no percentage win or loss against the underlying asset, only true or false. Whether the asset is trading 1% or 10% higher or lower makes no difference to the return on the position.
  • All-or-none means that you either win on predicting the market or lose the whole of your investment
  • Fixed odds refers to the fact that the potential gain or loss is not variable
  • Digital options is a concept from the world of Forex trading which simply refers to the fact that trading options has increasingly become an online activity with the introduction of binary options trading

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What comprises a binary options trade?

A classic binary options trade is comprised of the following elements:

  • The contract itself
  • The underlying asset
  • The strike price
  • The Contract Expiration Period (short term)

All binary options contracts include one of four financial categories; stocks, currency pairs, index or commodities. The purchase time form the basis for a purchase price (real-time) also called “Strike price”. This is the price, which is referred back to in order to create the outcome of a binary options trade. When the contract expires, the strike price will be the benchmark for the deal.

Binary options trading is high-risk investments since you risk losing the whole of your investment if your predictions of the market are wrong.

Get more in-depth expert information on the online guide for binary options en.bank-invest.eu

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