What Are Binary Options and How Do They Work?


While looking for your ideal forex trading platform, you might have stumbled upon forex brokers allowing to trade binary options. This probably sparked a question for you, respectively “What are binary options?”

Binary options can lead to two potential outcomes: you either lose your cash to open the trade, or you make a predetermined profit. How exactly do they work though, and what are their benefits?

Keep reading if you want to learn more about binary options.

Binary Options – What Are They?

A binary option refers to a financial product where the individuals taking part in the transaction are given two different possible results. These potential outcomes will depend on whether there is a money expiration or not. So, the outcome of the “yes/no” position influences everything. 

Two things could happen: you can either win a profit that was predetermined or lose the money you paid when opening the trade. 

Whoever goes for binary options has to choose whether they think the market will reach a specific price at a particular time. You sell if you don’t think the price will be reached, and you buy if you think it will be reached. 

How Does It Work?

So, how do these options work? Well, if you want to make a profit, the underlying asset’s price must get on the right strike price side by the time the binary options expire. As soon as the expiration takes place, the loss or gain on the trade is either debited or credited to the account of the individual. 

Binary options contracts can be traded for up to 1 week. Also, you can choose different markets to trade in, such as commodities, events, stock indices, or forex. 

What Are the Benefits of a Binary Option Contract?

Binary options have different advantages, just like many other financial instruments. Here are some of the top benefits of the binary options trading practice:

  • The risk is fixed. Before you trade, you will already be aware of all the potential results, so you’ll be in full control. 
  • No matter what direction you pick, you still have the chance to make a profit. 
  • You can close a trade earlier if you don’t want to deal with losses or if you want to keep a profit. 
  • Binary options contracts are great for beginners as they only involve easy yes and no questions. 

How to Learn Binary Options Trading?

Are you interested in understanding how to trade binary options? You must first learn all the market trends and then choose a market that you wish to trade. 

Next, you just select a price and expiration and make the trade. All that’s left is to wait for the expiration in case you don’t decide to completely close the trade earlier. 

It’s very easy to trade binary options contracts, so it shouldn’t be an issue. What takes more time is learning the different markets and which ones to choose. 

Final Thoughts

Binary options are great for both beginner and experienced traders. If you want an easy way to make a profit, you should look into binary options contracts and see if they fit your trading style.

Related To This Story

Latest NEWS