A binary option trading is a type of investment trading where your payoff is either all or none. This means that with binary trading, you can either win or lose a predetermined amount irrespective of the way the market is moving. Each binary option contract has an expiry date or time and you stand to gain your entire payout if the value of your contract is in-the-money at expiry. Similarly, you stand to lose all in case your contract position is out-of-money at the time of expiry. Binary Option are also commonly referred to as digital options.
In binary options trading, no actual asset or stocks are involved or owned by the investor. It is akin to a wager wherein you simply try to win money by correctly predicting the direction in which a particular stock or asset will move. You win if the stock moves as predicted by you or lose if it crashes. Correct assessment of market situation and astute forecast is the key to success in binary option trading.
There are two ways by which you can exercise your prediction…the ‘put’ and the ‘call’. You ‘put’ your contract if you feel the market is in decline and ‘call’ if you feel it is gaining. Unlike traditional trading, you do not have to guess by how much the market is moving…you only have to calculate whether the market is rising or falling and play your cards accordingly.
Although binary options trading operate on ‘all or none’ principle this does not mean you cannot make any money at all if your assessment is incorrect. Innovations by astute brokers have resulted in options that can offer you some payment ranging from 50% to 500% of the predetermined payout. This means even if your assessment is incorrect, you can recover a part of your investment. On the hand there are options that offer a 500% payback even though these are structured in a manner that makes it difficult for you to correctly assess their direction.