The term binary option is a self-explanatory word. Binary in any unit of languages means two choices. Similarly, binary options trading refers to a trading system where there are only two outcomes- all or nothing. The return on investment in binary options trading is always the same:
Either the investor is entitled to get some locked amount or a predefined quantity of the assets
Or nothing from his/her investment
Only if there is an expiry timeline binary options can be put to use. On the expiration time, if the investment reaches above the assured price, then the investor receives a desired amount of returns. On the contrary, if the investment drop below the assured amount then the investor will not receive anything. Binary option trading involves both gain and loss risk factor.
Before delving further into the topic let’s look into some of the most required terms.
Option: An “option” with relevance to the stock sector means a contract that provides you with an authority to acquire or dispose an item or asset at a certain amount. The acquiring or disposal is done at a specific predefined time in the coming future. There is also an amount set during the process. Option is only a right, it is not a bond or an agreement.
Strike Price: A strike price is otherwise known as target price. It is the cost at which any deal can be made. It is the price at which an asset or deal can be purchased or disposed by the investor of the deal. Binary option trading differs from normal trading as in the binary form of trading there is always a payment made irrespective of the high and low of the set target price.
CALL Option: To explain “Call” option in easy terms, it is a protection band available to the investor. The call option enables the investor to acquire definite amount of shares for any elemental resource at a predefined price. This predefined price is called as the strike price. This purchase needs to be done before a given date called as the expiration date.
The Call option requirements:
Some of the requisites necessary for the call option are described below.
There has to be a fixed date known as the expiration date when exercising the call option
There has to be a defined price for a call option known as the strike price.
There has to be an elemental resource for purchasing a call option. The resource can be anything ranging from money currency or asset or stock plans.
If you are wondering how the option of purchasing was named call, we will describe how.
In binary option trading, the intention behind naming the option of purchase was set to “Call “because the investor has the ownership of giving out the purchased stock if he senses any change in the invested amount. It only means that the investor has the authority over the deal but there is no commitment of purchase.
PUT Option: The “Put” option is something that is completely unlike the previously discussed “call” option. The put option can be described as the disposal of the acquired resource. It means that the investor can get rid of the purchased stock asset at a defined amount by the determined date. The investor can only dispose a certain amount of his shares of the given security by the date.
The Put option requirements:
Some of the requisites necessary for the put option are described below.
It is essential to have a fixed date termed as the expiration date when a put option is exercised.
Defining a strike price: A defined price has to be set for a put option.
For the put option it is required that the investor presents an asset or an elemental resource. This resource can be anything that has a value. It could be currency or index or commodity
Naming of the option of disposal as Put in binary option trading: The disposal option involved with the selling was named as put because this option gives a sense of freedom to the investor. The investing owner can take away the amount from the invested stock at his own right. In other words, it means that he is free to sell the acquired stock at his own will before the date of expiry.
How an investor performs binary option trading?
If the investor intents to perform binary options trading, then a “Call” or “Put” prediction is required from investor. When the investor assumes that the marketplace where he has invested is going to inflate or increase then he can proceed and buy a “call”. This call option would give him the authority to buy a security asset for a certain set price for a future day. If the investor had made the purchase, then it solely means that in his thought calculation his assets are going to increase in value sometime in the future. Alternatively, if the investor thinks that the market is going to experience a crash or a decline then he can buy in a “put”. The “put” option will enable to gain access to the power where he can dispose or sell his security at a determined amount before the date arrives.
He is anticipating that the price is going to scale down in the coming days than what it is for today. As a known fact, binary option trading for any investor involves predicting the possibilities and then making a choice of result. The investor would need to examine the market before he immerses feet into binary option trading sea. He needs to study the phenomenon of the stocks rising and falling. He has to get his predictions right before he chooses to use the call or put option. To make the fullest out of the trading the investor needs to be smart and intelligent to make the right decision. Binary option trading is very simple when compared to the traditional form of trading. This is because it only needs the investor to know the correct direction for proceeding with the stocks he possesses.