What is a Binary Option?
The first thing to give you insight into what a binary option is, is to understand the term binary. It refers to opposites, like off and on, black and white, north and south, up and down, etc. Binary refers to polarized opposites of hot and cold and left and right. So essentially these types of options are all or nothing. You either win or lose. Binary options provide you a 50% chance of winning or losing, which seems somewhat attractive to a lot of investors, and has become increasingly popular in the last four to five years.
They get you in the game without having to deal with very complex concerns like having to track 100’s of stocks with graphs and spreadsheets and all other types of variables you have to worry about with the market.
The way this works is that a broker who works with binaries will place a value on the probability of a certain event happening in the financial world. This probability, like all others, happens on a scale of zero to one hundred. So you buy in at the value placed by the broker, and then it either closes at 100 or at 0. You either win the bet or lose it and earn or lose the difference from 100 or zero at your bet price.
This is just one type of binary that there is out there for you to use for your investments and trades. For instance, there is a type called the one touch, which means that the market will touch a certain price during the day. So it can either touch it and decrease, or surpass it altogether, and any other variation of how the market could hit a number, up or down. Another way is the ladder. The ladder is the type of bet that says that the market will end up above or below a certain level, not just touching it and bouncing back. It has to pass through it or stay above or below it. The ladder can bring bigger revenue because the stakes are higher.
Another type is the target binary, which means you set a certain range that you would bet that the market would end in. If it lands in your predefined range, you will win, but if it doesn’t, you lose. There is another very simple kind called the hi lo which means you can set a range above or below where you think the market will close, and if you got it right, you win. Of course, if you didn’t… then you are out.
The final style is called the tunnel, where you set a plus and minus range for the market to work within for the day. As long as it stays within that range all day, you win out at 100, otherwise you lose at zero.
So that’s how these work. You either win or lose, fully. That’s why they are called binary options.
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