Binary option

When trading on the stock exchange, a lot of different tools and methods of concluding transactions are used; a binary option is just one of the options for performing transactions on the stock exchange. And although options trading cannot be classified in Forex terms, we still decided to briefly consider the meaning of this concept.

A binary option is a transaction with a pre-fixed rate of profit or loss, depending on the financial result of the transaction. It has several main indicators - remuneration, instrument, amount, size, forecast direction, validity period and compensation or insurance.

Transaction amount - the amount of money with which you buy this option, usually the minimum transaction is 5 US dollars, the minimum size of this indicator is set by the broker.

Trading tool You can trade currencies, metals, commodities, and indices. The instrument you select is based on the principle of the greatest predictability. That is, you choose the instrument for which you can make the most accurate forecast.

Amount of remuneration – the profit range when trading binary options fluctuates within a fairly wide range and can range from 60 to 700 percent, depending on the type of transaction and the duration of its execution.

Validity period – or, in other words, the option's lifespan, which ranges from 5 minutes to several weeks, and sometimes even months. When opening a new binary option, you specify how long it will expire.

Forecast direction – You can predict that the price of your chosen asset will be higher than the current price (Call option) or lower than the current price (Put option) after a certain time. Correctly determining the direction is crucial in binary options trading. Alternatively, in some cases, it's possible to predict price stability.

Compensation – According to the classic scheme, in the event of a loss, you lose the entire amount of the transaction, but currently, most options brokers offer their clients the opportunity to receive compensation, which usually does not exceed 15% of the transaction amount.

If you try to explain how this operation works in practice, you can describe binary options trading in just a few words. You go to dealing center website providing this service, you select the trading instrument - gold, the option amount - $10, the duration - one hour, and the forecast option - for an increase in the exchange rate.

If your forecast is correct and gold actually rises in price within an hour, your profit will be between 60 and 85 percent, depending on the market situation at the time of the trade. If your forecast is incorrect, you'll be left with about $1.50 in your account.

Binary options trading is advertised as one of the simplest forms of trading, but in reality, making profitable trades requires a well-formulated forecast based on market analysis.