Binary Options
A Forex Alternative
Trading binary options is a discipline that has grown in popularity recently. So what exactly is a binary option? Do you have to know binary code to trade these options? Why am I asking so many questions? I'm not sure about the number of questions, but I can answer the ones about options trading. Read on to find out about what they have to offer you as an investor.
*Side Note* - This site is primarily about Forex trading. If you got here by mistake and you're interested in Forex trading, check out our primer on the Forex market here.
What They Are
This type of option is sometimes referred to as a digital option or an "all or nothing" option. With this type of option, you enter into a contract to buy or sell a certain amount of a security for a certain price by a certain time.
With this tool, you have two possible outcomes. This is why it's called "binary" because in the case of binary code, you've got the choice of a "1" or a "0." In the case of options, your option either ends up in the money or it ends up worthless as it expires.
The Payoff
When trading this type of option contract, a payoff is involved. If the conditions of the option contract are met when the expiration date comes, you get the payoff amount agreed upon. If the option expires "out of the money," well you're also out of the money. You get nada. Kind of risky isn't it? It's almost like playing the lottery, except you get significantly better odds and you can negotiate the contracts.
Brokers
In order to get involved with this market, you will most likely have to open an account with an options broker. These brokers are similar to Forex brokers if you've already traded in the Forex market before. You deposit money into your account, then you download a trading platform software to your computer. You get the chance to place trades directly from your computer.
Should You Get Involved?
If you're looking for an alternative form of investment, this can be a viable option to consider. It can add to your portfolio if you're already trading Forex, commodities, stocks or bonds. Before you get started, try trading on a demo account so that you can see how it works. Also, spend some time finding a good options trading system, just like you would when trading the Forex market.
