Binary options — what is it in simple words

Advertising of binary options was met by everyone who at least once was interested in financial topics in Runet. And many have wondered more than once what options are, why they are binary, and how it is generally connected with earnings. So that you do not rack your brains further, we will explain their essence in simple words and what is the focus of earning with their help.

1. The essence and history of the emergence of binary options

The phrase «binary options» denotes a type of exchange contract in which you need to predict the future growth or decline in the price of a financial asset after a certain time period.

Binary options appeared as a financial instrument in 2008, as derivatives of the classic options that have existed on the Chicago Stock Exchange (CBOE) since the early 90s. Classic options, which are also called “vanilla” options, are contracts that give the right, but not the obligation, to purchase or sell an exchange-traded asset at a fixed price during the life of the option.

Binary options have become a “light” version of the classic ones and involve only making a trading bet with a forecast of the movement of quotations UP or DOWN. It is this double logic that gave the name to the new options «binary». From the word «bit», which can be 0 or 1.

But if you think that this format of work is innovative, then it is not. Bets on quotes have been around for a long time. Today, there are financial market veteran companies that have been taking price-level bets since the mid-1970s. Therefore, binary options are long-standing bets on the market in new clothes with good advertising.

В роли биржевых активов в опционной торговле выступают:

  • Currency pairs;
  • Stock indices;
  • Cryptocurrency;
  • Securities;
  • Precious metals;
  • Commodities.

At the same time, a trader does not need to invest tens of thousands of dollars in their purchase, as it should be done on stock or commodity exchanges. In fact, a binary options trader can put even $100 into a trading account, which will be enough to place bets on the direction of quotes movement.

2. Where to trade binary options

Binary options trading is carried out on the platforms of brokerage companies online. You register with a broker, replenish a trading account with him, and immediately get access to his platform, where the current quotes of various exchange assets are broadcast in real time. Here it should be immediately understood that those binary options offered by online brokers are over-the-counter.

Real stock options can only be traded on US exchanges such as Nadex, CBOE and Cantor, but a trader from the Russian Federation does not have access to them. Such trading requires large capital investments, the execution of complex English-language contracts, and provides for a floating percentage of profitability on a very limited number of trading assets.

Those binary options that ordinary traders can trade are over-the-counter. This does not mean that they are not real, because trading on the broker’s platform online is carried out on the same quotes that are displayed to traders on American exchanges. You will have at your disposal a trading platform with real quotes and a manual for making deals. And if you register with an advanced broker, then you will have additional technical tools for market analysis on the terminal, which greatly simplifies trading and its profitability.

For example, Binomo offers such a platform:

Binary options - what is it in simple words
Binary options — what is it in simple words

3. How and how much they earn on binary options

The profitability of binary options can reach 90%, and the loss on the transaction is always 100%. If you made a bet of $100 that the price of an asset in 5 minutes will be higher than the current price and the forecast came true, you get $90. In simple words, in just 5 minutes you can practically double the amount of your investment. But if it doesn’t work out, you lose your $100. In general, the duration of the option can be from 1 minute to 24 hours, therefore, theoretically, you can earn even faster, or slower, but safer.

We will not promise you mountains of gold, because making money on binary options is not as easy as it seems. As in any profession, it requires knowledge and skills that can be obtained from a broker in a free training program.

For trading, it is necessary to use technical analysis trading strategies that will allow you to close more than 80% of transactions with profit. At the same time, you will need to constantly improve your skills, learn new approaches for price forecasting in various market situations and constantly keep abreast of developments in the economic, financial and political environment. It’s worth it when you consider that binary options can bring a profit in the amount of your monthly salary at a previous job in a few days.

Binary options - what is it in simple words

4. Strategies and indicators for binary options

Many traders have tried to conquer this financial instrument. Few have been able to do this. It has a lot to do with emotions.

Trading psychology is very important, especially when it comes to short-term trades like this one. Few people use money management, but in vain. It will allow you to professionally manage your capital: when you need to open large transactions, and sometimes for small amounts.

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