What are Binary Options?
Binary Options are a type of financial product that offers a fixed payout to the buyer depending upon the outcome of the option. As the name suggests, the buyer predicts the “yes” or “no” proposition for the particular option.
If the option expires in favour of the buyer takes the prescribed money or of the underlying assets and if the buyer loses the contract he may lose all his money.
In laymen’s terms, you make a certain prediction for a particular option and win or lose based on how your prediction turns out.
Binary Options’ growing appeal
This exotic financial instrument is becoming famous across the globe due to its simplistic nature and lucrative returns. Although the binary options are here for some time they are being adopted widely since the inception of binary options exchanges. In the year 2008, the SEC approved Binary Options as the trade instruments and the American Stock Exchange (AMEX) launched binary options subsequently that year.
Today, South Africa is leading the charts among new binary options traders and South Africa today has one of the highest numbers of successful binary traders in the world.
The influx of people into the binary options trading led to the expansion of the market and resulted in hundreds of binary options brokers and binary exchanges. The regulations grew stronger with time and authorities accepted binary options as a serious trading instrument rather than a gambling or gaming tool.
What are the benefits of Binary Options?
There are many advantages associated with binary options trading. The foremost advantage is that the trade in the binary options includes almost all market types like forex, commodities, and stock indices among others.
The trades are done within pre-defined durations and the predictions are made using the market movements such as up/down, in/out, touch/no-touch, etc.
Another big advantage of binary options is large payouts. The technological advancements over the years and the ease of access have made the availability and accessibility of binary options easier. However, heavy payouts make binary options prone to frauds and scams.
Binary Options Risk Management
Risk management is crucial. Risk is an inevitable element of binary options and should not be overseen or ignored. Also, the risk is factual, thus you need to learn the skills and have the knowledge that will help you manage it. What does it mean to manage risk? It means to acknowledge its existence and develop or embrace the instruments that will make its occurrence sparse or even scattered. Your trades, even those successful once, will never be risk-free.
The success in binary options only proves that the combination of your knowledge, time of the trade and the strategy you applied, managed the risk it entailed perfectly, resulting in a positive outcome. Not only did you succeed in binary options, you succeed in risk management as well.
Despite the high-risk factor, it does not mean that binary options itself are bad. The traders interested in this type of trading should be more cautious and gain adequate knowledge of the binary options itself.
Keeping an eye out for Binary Options
The regulations are tightened over time to reduce the possibility of fraud. The Financial Services Board is a South African regulatory agency in charge of compliance and supervisory of the entire financial services industry in South Africa, including Binary Options.
Although Binary Options are legal in South Africa, South African traders should be aware of the risks involved in binary options and check the credibility and authentication of the binary options broker, before registering and depositing into a trading account.
Digital Options is a type of contractual option that offers a fixed return if the underlying commodity or underlying asset reaches the predetermined value or end price. There is an advance fee as premium which may translate into the maximum loss in case the trader loses the contract.
The options are financial derivatives so they receive their value from a base asset. The opportunity of winning a payout is associated with the underlying price to exceed a pre-determined limit, which commonly is known as the strike price.
Although many sceptics relate trading of digital options to gambling, the process is much closer to better market insights and predicting future prices based on the market data. It is the “All-or-Nothing” nature of the contracts that make it relatable to gambling.
How do Digital Options work?
The basic principle on which binary options work is quite simple. The digital option offers two opposite outcomes for any trade. If the prediction made by traders turns out to be correct, they generate a pre-determined profit on that particular trade.
On the other hand, if the prediction made by traders turns out to be wrong, they lose the money they have put in the trade. Before starting trade in digital options, the traders should get a good grip on the terminologies of this particular trade.
If a trader wants to predict in favour of price to go up, he would have to buy an option called “Call”. Contrary to this, if the trader thinks that the price will go down, he would choose the “Put” option for the trade.
Call options return a payout if the underlying asset price of the selected commodity of forex is above the strike price. The put options return a profit if the underlying price is lower than the strike on the expiry of the digital option.
In the market terms, let’s clear this concept of digital options with an example of gold price. There is a digital option of gold which expire at 3 pm. If the price of the gold is $1500 at any given time before 6 pm and you believe that the gold will gain the price, you should buy the call option with the strike price which you think will be achieved.
Although market prices fluctuate with every second and they may change in a matter of a minute, however, the price needs to be above $1500 at 6 pm. It doesn’t matter how much price did fall before going above the strike. The digital option only considers the price exactly on the expiry of the option.
The return on the investment may go above 900% of the investment but on the other hand, the whole investment would be lost if the traders lose the option.
Call & Put Options
Call and put options are financial trading options that work on the principle of derivatives. The derivative is the price of the option based on the price of some other market asset. If the price of the underlying asset rises or falls the derivative follows the trend instantaneously and this change is totally market-driven.
The options are basically contracts between the options brokerage and the trader. The contract gives the trader right to buy the underlying asset at any given time or sell it by setting a strike price and future time as the expiry of that particular contract. The strike price can be defined as the specific monetary price of the asset that would be on the exact moment of expiry.
The “binary” nature of Call and Put Options
The name call and put options are based on two options used in this type of derivative trading.
A trader buys a call option if he predicts the price of the underlying asset or commodity to rise on the strike.
The put option opted when the traders think that the price of the underlying asset will fall below a certain level at some particular point. The call option works differently in different markets. Although the basic working principle behind the call and put options is the same everywhere, there are some differences in working based on the location they are being used.
The call and put option can be either short term or long term. When a trader or buyers buy the call option, it means that they predict the price of the underlying to go above the strike. If it results in favour of the prediction of the buyer, the buyer wins the payout. The amount of payout depends on the contract terms. The seller of the contract, which usually is a brokerage, generates the income through the premium paid by the buyers.
Some other important terms to know for the call and out options are “In the Money”, “Out of the Money”, and “At the money”. If the price of the call option is above the strike or the price of the put option is below the strike, it means that the option is in the money.
The Out of the Money option would be the exact opposite of the in the money. If the price of a call or put options is exactly the same at the strike then it will be at the money.
The call and put options are quite famous among the traders due to their simplistic nature of trade. You either need to choose the call button or the put option to start the trade and earn handsome payouts using your market insights.
For years, people relied on various underlying assets and commodities to earn income. With the passage of time, the global financial markets evolved and the last century turned out to be revolutionary for the financial system. Many new products came out with time and the traders got the opportunity to earn a handsome regular income.
The Forex Options are among those options that offer the buyers to earn an active income. Forex options are a type of derivative with the underlying currency pair. The term underlying refers to the currency pairs from which a particular forex option derives its price.
Unlike many other available options in the market, forex options trading involves many strategies available to trade within the forex markets.
The forex options differ from the marketplace working of many financial instruments. Like in “Futures”, the trader must fulfil the contract i.e. actual delivery of the commodity or asset, in order to close the contract. However, forex options trade over-the-counter (OTC), and the physical change of hands is not necessary to legally required for the contract to be fulfilled.
How risky is trading Forex Options?
The forex option poses limited risk to the traders as the only risk involved it to the extent of the premium only. The forex trading works on the various complex tools and hence it is quite difficult to predict the price projection of any particular currency.
The type of choices for forex options includes the call or put option and SPOT or single payment option trading. Forex options buyer holds the contractual right to sell or buy a certain amount of the underlying currency at a specific rate on a pre-determined date called options expiry. The holder or buyer has to pay a premium or fee to the seller to acquire the option.
One thing which is pretty important and kept in mind regarding the forex options is that though the buyer possesses the right to exercise the contract but is under no obligation to actually carry it out.
On the other hand, the seller is bound to sell out the contract if the buyer demands it.
An important term to know for the Forex trading is the intrinsic value which is the difference between the strike price of the option and the price of currency pair at any certain time. The in-the-money (ITM) and out-of-the-money (OTM) contract depend mainly on intrinsic value.
The same level of the strike price and the current price equality means that the option is at-the-money (ATM). The forex option is not favourable for the trader if it is OTM or ATM.
The Forex options have more depth and liquidity than the other option in the market. Hence it is used widely by the traders.
The options are a kind of financial instrument that returns some predetermined amount if the prediction about the price projection for some underlying asset, currency, or commodity turns out to be true. High/ Low Options are among such options.
Although high low options are different in many aspects than other options available in the market but what makes high low options stands out among others is the simplistic nature of the trade.
In the high low options, the buyer just needs to predict whether the price will go up or down the current market price for the underlying asset or commodity.
The payouts in High/Low Options
The payout for the high low binary options is fixed and is not related to how much the market price goes above or below the current level. It is pertinent to mention that the payout for this option is usually fluctuating between 70-80% of the investment.
The most common expiry times in High/ Low Options trading
The duration of the trade for high low options is usually very short i.e. 60 seconds. The high option is usually called call and the low option is called put in this binary option.
For example, if the price of a currency is at 129.01 and you predict that the price will increase after 60 seconds and will stay above the 129.01, you would simply choose the call option. If this sounds too complicated to follow, you can look into binary robot as a trading assistant.
If the price of the same currency is going down in your opinion, then you need to choose the put option for the trade. The high/ low nature of this option presents only two outcomes that is why it is the classic example of Binary options but traders love to use the term high low options.
It doesn’t matter if the price during the 60 seconds goes down or stays down during the most of 60 seconds. If you have chosen the call option then it only matters that the price should be above the current point on the strike.
There is an option very similar to the working and name of the high low option, the Above/ Below options. The only difference among both is the high low options depends upon the market price while in the above/below options the trader predicts the price to go above or below the price determined or predicted by the broker.
Due to its simple nature of trading and ease of operations, the high low options are by far the most used option in the market.
Their simplistic nature suits the beginners and they can gain market insights by trading in this option. The traders should choose only the trusted and well-reputed brokers for high low trading.