What is a binary option? A binary option is a special trading instrument which is in itself a simple idea but can be traded in complex ways. It is a fixed-return investment meaning you know its value when you win and you know its loss when you lose. Binary option wins are triggered by an underlying asset (say, a stock or a currency pair) touches a certain point or finishes higher or lower — and your investment is in the form of a bet on this action happening at a fixed time.
Do you want a simple example?
You think the stock AAPL will go down today from its current point because of news. You bet $100 that it will go down on your binary options broker site. It tells you that your profit will be 80% if you win. AAPL goes down, and you receive back $180.
Easy huh? In the same way that stock options can be traded in unusual ways, so can a binary option. You can trade them against each other, buy at three different points to increase your bet as it travels, hedge a bet and buy a “sell” if the market isn’t going with your “buy”, lots of things. And, best of all a reputable broker will inform you completely on what assets are active and what the current news is. Good binary option broker sites will even tell you how other traders are betting so you can take their action into account.
Binary options are known as all-or-nothing options in that you either win the profit in addition to your bet or you lose only the amount of your bet.
We hope you’ll check out some of our other educational information on binary options, and once you’re ready to consider trading, move on over to visit our recommended brokers page.