A relatively new way of trading in the financial markets.
Binary options are a simple way to trade price fluctuations in multiple global markets.
Binary options are extremely simple to use and understand functionally. The most common binary option is a “high-low” option.
Providing access to stocks, indices, commodities and foreign exchange, a high-low binary option is also called a fixed-return option. This is because the option has an expiry date/time and also what is called a strike price.
If a trader wagers correctly on the market’s direction and the price at the time of expiry is on the correct side of the strike price, the trader is paid a fixed return regardless of how much the instrument moved. A trader who wagers incorrectly on the market’s direction loses his investment.
If a trader believes the market is rising, he would purchase a “call.” If the trader believes the market is falling, he would buy a “put.” For a call to make money, the price must be above the strike price at the expiry time. For a put to make money, the price must be below the strike price at the expiry time. The strike price, expiry, payout and risk are all disclosed at the trade’s outset. For most high-low binary options outside the U.S., the strike price is the current price or rate of the underlying financial product, such as the S&P 500 index, EUR/USD currency pair or a particular stock. Therefore, the trader is wagering whether the future price at expiry will be higher or lower than the current price.
Binary options were legalized in the United States in 2008, and have quickly become one of the easiest and fastest ways to trade. They are different from other types of trading because with these, you are not actually taking ownership of any assets. Instead, you are attempting to predict the movement of the underlying asset only.