Although it sounds confusing, binary trading is one of the easier trading options to understand. In fact, if you have a good understanding of your asset’s value, binary trading is a fast way to make a potential profit.
The idea behind binary trading is easy to understand. You need to determine whether the value of an asset will be above a certain price by a certain time. If you think it won’t, you’ll purchase a put. If you think it will, you’ll purchase a call. Once the set time expires, the option will settle at $0 if it wasn’t above the price or $100 if it was. If you were correct, you get a fixed return, and if you were wrong, you lose your investment.
One example of binary trading is as follows: Say you have an asset you like, so you trade for five contracts. The asset has a bid of $60, an offer of $70, and a question of whether it will be above $4,000 by noon. If you think it won’t make it to this price, you can sell the $60 option, and your maximum loss is $200 ($100 – $60 = $40 and $40 x 5 = $200). If you think it will surpass $4,000, you can buy the $70 option, and if you’re correct, your maximum profit is $350 ($70 x 5 = $350).
Every investor has different wants and goals. Read on to learn more about binary trading so you can decide if this is the right trading option for you.