An Introduction to Binary Options

Binary options are increasingly popular financial products, which offer an all or nothing scenario. They are available in a number of different markets, and may be known by alternate names, including digital options or fixed return options. In short, the payoff is either a fixed and particular amount of an asset, or nothing. The term binary does of course refer to the fact that there are only two potential outcomes.

There is little uncertainty with binary options, because the potential outcomes are fully known when the position is opened. The exact potential earnings are calculated, so risk and reward can be immediately worked out. There’s a fixed time in which the option expires, and it is by this time that the target price must be reached. For example, you might purchase a call option on a stock at $200, with a $1000 payoff at the end of the trading day. If the price is at or above $200 at the close, then you earn $1000, but if it is lower, there are no returns.

Binary options are quite flexible in that they can be bought on just about any financial product, whether that is forex pairs, stocks or commodities. They are also available in either direction, whether you choose a call / up option, or a put / down option, so you can take advantage of both bear and bull markets.

There are no fees to pay on binary options, because issuers make their money on positions that receive no returns. Some consider this a negative aspect, because the broker has an interest in the position failing, but the truth is that they have no control over the outcome, at there is competition between providers to offer the best rates. Again, you fully understand the outcomes to begin with because there are no fees. You’re also free to choose whoever you want, so the power is in your hands.

Binary options are a good choice for those who want a product that’s quick (because trades can be a short as just 5 minutes) and which has a clearly defined risk and reward scenario. Many major investors disregard it as gambling, but this simply isn’t the case. Research the markets just as you would with any other method of investment, and binary options can be just as effective as straight purchasing of stocks and shares.