Binary options trading is an exciting new way of investing money and earning profits. Binaries are also known as digital options, and they have two possible outcomes.
In binary options trading, an investor does not purchase the asset, instead he speculates on the movement of a financial instrument in the market. By assessing the movement of an asset in the right direction, an investor can make money. Before purchasing a binary option, an investor needs to be aware of two possible outcomes of the binary.
For example, if someone purchases a binary option for $10, and speculates that at the end of the day, the price will go higher than its current price. If he predicts correctly then he earns a certain percent of profit on his investment. There are so many binary options brokers and the return on the investment generally ranges between 60% and 80%.
Out of Money Reward
Most Binary Options brokers guarantee an out of money reward to their trader, which is a type of guarantee that an investor will not lose all his money, even if his predication goes wrong.
This out of money reward typically lies between 5% and 10%. But many brokers do not provide any out of money reward to their traders. So, before investing money with an Options Broker, one needs to ascertain if the broker provides an out of money reward to their traders.
Binary option outcomes:
- If at the end of the day, your prediction goes right and the broker offers you an earning of 70%, then on your investment of $10, you will get a payout of $17.
- On the other hand, if you fail to guess the market movement correctly and the broker allows you an out of money reward of 10%, then for your investment of $10, you will get only $1 at the end of the day.
Differences between binary options and regular options:
Binary options is different from the regular options, which is also called the vanilla option. The three major differences between the two are:
- Vanilla option generally expires monthly or quarterly, whereas binary options may expire at the end of the day, week or month. Hence, binary options can get you a faster return on investment.
- In Vanilla option, the payout depends on the price change of the assets, while in binary options the earnings are fixed, generally between 60%-80%.
- Vanilla option can be executed anytime until the expiry time, but binary options cannot be executed before the expiry time.
These differences underline that in binary options an investor can make an instant profit and it is a more flexible investment option. In the real sense, investing in binary options is a novel and interesting way of investing money in the global financial markets and making money.