What is binary options trading?

What is binary options trading?

What is binary options trading? Binary options trading relies on two directions – higher and lower or up / down – with respect to commodities prices, foreign exchange market rates and indices. In trading binary options, you’re predicting whether an asset class will be above or below a certain price at a certain time. If you purchase a “higher” option in binary trading and the rate rises, then you will receive a return. Had you chosen “lower”, then your trade would not yield any returns and you would lose your stakes invested in that binary trade or binary bet.

Binary options can simplify the market for many people. Few people are investment bank analysts who research markets for a living. Casual and serious market watchers alike have a chance to make profits in binary options trading without being an expert analyst or consulting teams of advisers to place investments.

Assets that can be traded as binary options

As with other investments, the assets available to trade as binary options will depend on the broker you choose.

In general, you can trade on:

  • Stock indexes, like the S&P 500, Nasdaq, Russell 2000 and FTSE 100.
  • Forex (currency pairs).
  • Commodities, like precious metals, crude oil, natural gas, soybeans and corn.
  • Individual stocks.
  • Economic events, like the federal funds rate or the jobs report.

How binary option trades work

To place a binary option trade, you’ll walk through three main steps:

  1. Decide on an asset or market to trade.
  2. Decide on an expiration date or time for the option to close. Most trading platforms let you sort by expiration date, so you can view contracts that expire within the next few hours or days. Most contracts will expire by the end of the trading week, except those tied to economic events.
  3. Decide if you want to buy or sell the binary option, based on the strike price and expiration date. The strike price is essentially a line in the sand. If you think the asset will be above the strike price when the contract expires, you buy the binary option. If you think the asset will be below the strike price, you sell the binary option.
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