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.

Tool of the trade – you can trade currencies, metals, commodities and indices; the choice of instrument is carried out on the basis of the greatest predictability. That is, you choose the instrument for which you can make a forecast with the greatest accuracy.

Reward amount – the range of profits when trading binary options fluctuates quite widely and can range from 60 to 700 percent, depending on the type of transaction and the duration of its implementation.

Validity – or in other words, the lifetime of the option ranges from 5 minutes to several weeks, and sometimes months. When opening a new binary option, you indicate how long it will take to expire.

Forecast direction – you can claim that the price of the asset you have chosen after a certain time will be higher than the current Call option or lower than the Put option. It is the correct determination of the direction that is fundamental when trading binary options. Alternatively, in some cases it is possible to predict the price will remain unchanged.

Compensation – according to the classic scheme, if you lose, you lose the entire amount of the transaction, but at the moment, most options brokers provide their clients with the opportunity to receive compensation, which usually does not exceed 15% of the amount of the transaction.

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

If your forecast came true and gold actually rose in price an hour later, the profit margin will be from 60 to 85 percent, depending on the market situation at the time the transaction was opened.

If your forecast is wrong, your account will have about $1.5 left. In advertising, binary options trading is presented as one of the simplest types of trading, but in reality, making profitable trades requires a well-formed forecast based on market analysis.