Binary = 1 or 0. You have 2 options - up or down, you need to decide if the market will go up or down and decide when to close the expiry of the trade.
Example you know Apple now is 700.111
You will open a trade and decide the Apple stock should go or down
if after - 1min - 1 hour or 10 hours (you decide on the expiry of the trade) it will go down to 700.110 - you Have up to 83% profit (depends on what platform you are trading on)
Binary Options (digital option, the option of "all or nothing" option or fixed return) - an option that, depending on the implementation of the agreed conditions at the agreed time, or has a fixed amount of income, or do not bring anything.
Usually the question is whether the stock exchange price of the underlying asset above (or below) a certain level. Fixed payment is made in the event of winning an option, regardless of the price change (as far as it is higher or lower).
Binary options can accurately know the size of the possible risks and benefits before the conclusion of the contract, which provides the ability to easily manage large numbers of transactions.
For simplicity, it is usually assumed that exercise the option has value 100, the non-performing - 0. If the option was purchased at a price of 10, when it is executed (the price of the underlying asset was above a specified level at a specified time), the option price is equal to 100 and that this amount gets trader. If the option is not executed, then its price is 0 and the trader gets nothing. Some trading platforms, the outstanding options can be returned up to 15% of the money spent on buying it. If the option was on the increase / decrease in price, and closed exactly at the reference price, the trader can return the original amount or part of it (depending on the contract).
Depending on the current market situation, the price of buying / selling binary options can vary widely.
Instead of buying their own assets, traders can use binary options to generate income on the fact that the correct definition of the direction in which to move the price of the asset. Thus it is sufficient to predict the only two options - the price on the selected asset (Call-option) or lowering the price of the asset (Put Option). If during the period of time prediction is successful and the price of the asset will be at a specified level, or better than, the trader receives a fixed income.
Originally binary options considered exotic and had a wide aftermarket. So it normally could not be resold to another person. In May 2008, the American Stock Exchange (AMEX) and the Chicago Board Options Exchange (CBOE) began the systematic trade binary options, and in June 2008, these contracts are standardized, which allows them to have is a continuous exchange quotations.
Particularly Europe and America
In European practice to check prices in the option is given to the closing date of the option. In the American version of the inspection can take place continuously, ie delivery option can occur at any time of the purchase option, prior to its closure.
[Edit] Features of Binary Options
Managed risk - the main feature of binary options is that the trader knows how much he can lose or win on any of the options before the conclusion of the transaction.
Availability - The traders buy the contract, not the asset that produces income from predicted price movement to more merchants, that otherwise would not be able to overcome the barrier of high prices. For example, instead of buying 20 shares in the amount of $ 1,000 as an alternative you can spend $ 20 to buy Call-2 binary options (see example below).
Yield - the figure may be much higher than yields placement similar sums in direct purchase of assets, since returns are not dependent on the final price difference, but rather related to the change in direction of the price movement of the asset.
Simple - because the amount of payments on binary options depends largely on the direction of change in the price of the asset and is not linked to the price difference is for profit requires less detailed information about the asset. This makes trading binary options available to less experienced traders.
Examples of binary options:
Examples of trading binary options:
1) Purchase Option on the excess price level. With the cost of one share of Apple $ 50, will need at least $ 1,000 for the purchase of the lot is 20 shares. If the stock price rises to $ 55, the revenue will be $ 100 (20 shares x $ 5) at 10% yield. Income can have other meanings, depending on the fluctuation of prices. If the price is unfavorable, then the trader will have a choice - to close with a loss or wait for price growth. Alternatively, you can buy Call-2 binary options at $ 10 a share for the achievement of Apple price of $ 55 until the end of the week. Exercise the option price will be equal to $ 100. If the price does reach 55 dollars or is higher, the trader will receive $ 200 (100 x 2), the income will be $ 180, the yield - 900%. If the price reaches this level, he loses the $ 20 paid for the option.
2) Purchase the option to increase the price of the current level. Assuming that the end of the day Microsoft stock will cost more than at present, a trader buys a binary option on the closing price is above the current Microsoft for $ 10 with a possible bonus 17.10 USD (71% return on investment). If by the end of the day Microsoft stock did rise, the trader will receive U.S. $ 17.10 (gain 7.10 dollars). If the stock price drops, the trader loses money invested.
3) The sale option for its excess. At midday, the euro against the U.S. dollar (EUR / USD) behind the previous day's closing price (the price at 20.00 London time) on 20 points. Option for exceeding EUR / USD the previous day can be sold for $ 38 or purchased for $ 41.5. Trader decides that the price does not recover and sells 2 option at $ 38, had revenue of $ 76. The worst outcome for the trader would be the closing price of EUR / USD above the previous one, which will lead to the settlement price of the option at 100, that the trader will be required to pay. His risk is limited (100 - 38) x 2 = $ 124 contract. If the underlying instrument does not finish up in a day, then the option will lose its value, and the trader did no one will have to pay, while he has already received $ 76, which are his profits.
Option (option) - translated to English means choice. This name speaks eloquently as the main option contracts: the trader has the broadest possible definition of the specific conditions of the option, the most satisfying of his interests.
Option Trading entails working with contracts that provide a fixed income with a strictly limited risks determined by the trader. This is one of the main advantages option trading, compared with spot trading in the foreign exchange market in which a trader can not be sure how far the exchange rate moves against his position.
Another advantage of the option trading is to profit from any change of course, even if the change is minimal in its significance. In some kinds of options that are dealing center Signals Binary ™ offers its clients, winning enough to capture change the rate of 0.001%, which is ten times less than the average intraday price fluctuations in the foreign exchange market.
What is the mechanism of the profit when dealing with options? Consider a simple example:
The current rate of EURUSD is 1.3200. You predict that by the closing rate of the currency pair will decrease and the option to buy an intraday fall in the value of $ 1000. If your prediction comes true, the option value increases to the amount of $ 1,000, multiplied by a coefficient, which for this type of option is equal to 1.80, that is up to $ 1800. In this example, your net profit is $ 1800 -1000 $ = $ 800.
Each option offered by the Internet broker Signals Binary ™ for purchase is a contract (deal) with certain conditions regarding the future course of conduct under which the trader makes a profit equal to the value of the option multiplied by the ratio of profitable. For each option has its own coefficient of profitable, which depends on the type of option and its parameters (with the exception of options decrease and increase, the ratio of profitable which is always equal to 1.80). All parameters option trader defines itself under trade on the company's website, and the option price is calculated automatically by the system after sending a request to the trader buying the option. This enables our clients to know in advance the size of their risks and make a decision about buying a call option, or revision of the terms of the transaction prior to its conclusion.
In addition, the forex market options, there are options that generate a fixed income, or do not bring anything at all. This type of forex option called binary options.
What makes binary options in an attractive place to invest? A: fixed income, as payments, depending on the state of the financial markets, which are, at some point, above or below a certain level. Unlike standard options, buying binary options, the trader expects to certain payments that depend on the progress of the financial instrument on the market. When trading binary options, the market is moving mainly towards the significant benefits. The structure of binary options is designed so that options can be substantial profits, even with small changes in the source markets.
In most cases, the price of binary options is dependent on the current market conditions and investors the opportunity to make a profit based solely on short-term changes in the financial markets. This type of market trading is easily digested by investors and as a trader starts trading binary tools, he quickly manages to capture the benefits of trading binary options trading as compared to other types of options.
For example, trade binary options on Forex trading can take place as follows.
Investor assumes that the value of the currency pair, GBP / USD will rise in the next hour. An investor checks which of the binary options currently available in brokerage platforms and decides to invest $ 200 in Forex Trading binary options with the payment of 70%, if the price of the currency pair GBP / USD to rise for 1 hour. This type of binary options on forex is called "Call» (above). From this example, it follows that successful trading this type of binary options investor will profit $ 140 $ 200 invested, which in total will be $ 340. If the value of the above-mentioned pair drops within an hour, the binary option will pay only 10% of the investment trader (in some cases, the investor returns less than 10%). In this case, the investor will return $ 20 of the investment.
There are also binary options that allow investors to speculate on the specific variation or range of price increases over a period of time. In this case also, it must be assumed to reach a pre-defined framework option or not. This type of option is called "hit» (hit) and "Miss» (miss). When trading options "hit" and "Miss" should be designated as temporary or cost measures, for which the broker or stockbroker will form a certain value. For example, an option trader gets "hit", as soon as the report was published on the state of U.S. employment. If the value of the currency pair GBP / USD, increased by 20 points to prices listed trader, five minutes after the publication of the report on employment, the trader will receive payment on the option "hit" because of his assumption that the option reaches a certain price proved to be correct. In the case of option "Miss", the trader would have guessed that the option will not reach certain price limits.
The cost of binary options is determined in the same manner as the value of the standard options. In general, in order to determine whether or not to invest in options "call" options or "put", which he intended to purchase, options trader should take into account the price of the option and the base price of a financial instrument and implied volatility. When buying binary options, there is no need to take into account all of the issues associated with standard options. All you need for a successful trade is simply to predict increase or decrease the cost of an asset over time. The advantage of trading binary options, compared to the standard options is that there is no need to take into account the different situations faced when trading standard options. There is no need to define the expiry dates of the price of the tools of trade, and there is no need to go into the Greek model of hedging. Investor or a profit or not. Closer to the standard options trading profits, when trading binary options possible using options "call." high-return, or by using a put spread. Unfortunately, even such a structure can be problematic, if the timing of payments remained fairly short.
Binary options brokers as well, market brokers argue that the full range of options is easy to use, allowing investors to conduct successful trading in the major markets.