The basics of binary options trading

Have you ever thought about trading binary options? Even many experienced investors are a little confused about this investment vehicle, but it’s actually surprisingly simple.

First, you choose a particular asset that you’d like to trade in. Second, decide whether you think the price at a specific date and time will be above or below a certain threshold. That’s the basics of binary options trading in broad strokes.

The details are also fairly simple. For example, if you think silver will rise above $18 at 1:00 p.m. today, you buy an option, which might be priced at $70. If you think silver will be priced below $18, you would sell an option, which might be priced at $60.

The buy price is always slightly higher than the sell price, and all prices are below $100. At 1:00 p.m., the options expire. If your guess was correct, you can collect $100. If your guess was wrong, your option is worth $0.

The process gets more intricate if you don’t hold your options until they expire. The prices will keep fluctuating until the expiration time, so you can close your position and lock in a profit (or limit a loss) at any time before the expiration.

Of course, you can buy or sell more than one contract at a time. There are also some formulas that wise investors use to maximize profits and control risks, like maximum losses in a row, average wins and losses, and net profitable trades. Learn more about them in this infographic about binary options trading.

 

Share This: