Explaining Binary Options
The concept behind binary options is much like gambling on your ability to predict. When you purchase a binary option, you are not purchasing the actual stock but you are purchasing the right to make money by predicting how that stock will trade either up or down. This is how binary options trading is done.
A trader makes an agreement to take a contract to purchase a stock at a specific price and at a certain time period. The contract tells the potential trader how much profit he can make or how much he can lose before he actually buys the option. A trader is told in binary options trading the possible scenario that could occur if he should buy the option. The first option he is given is the possibility of making money and the second option he is given is the possibility of getting nothing for his option if he fails to act and his binary options contract expires.
When making plans to trade in binary options, the trader should do his research to be sure that he is informed about the contract he is contemplating on purchasing. The trader should know what the asset also called a product is and its value. The trader should have a real understanding of the expiration of the contract that could cost him the trade. The trader should have a preconceived idea of how he imagines the product will be traded either higher or lower before the expiration of the contract that he is planning on buying in an option.
In buying binary options, a trader is looking at products like stocks, money, commodities and other possible things that are traded. That is the basis of his contract or the asset that he is buying the option to foresee how it will trade. The contract that he buys will have an expiration time. That means that the contract will be void at the end of the expiration time. The trader can buy binary options that have specific expiration times or can buy an hour option in that asset.
Regardless of how he gets a binary option, the trader needs to know how much the strike price of the asset is. That is the price he must pay to buy an option into that asset. Once he has paid that strike price and owns a binary option, he can predict how it will trade within the expiration time or within the hour that he has purchased.
Predicting how an asset will trade is simple. It will either go up or it will go down. If the trader things that the asset will go up he plans on a call option. If he thinks the asset will go down, he plans on a put option. The trader needs to make a decision before the expiration of his contract into that option.
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