Understanding Binary Options from Trading Point of View
Binary options are identical to standard options in several aspects; however, there is still one major disparity. These options form their basis on a system where traders can find out the maximum profit and loss well in advance. As a result of this characteristic, it is comparatively simple to estimate risk and benefit for any such trading. The next task is to select a market for trading these options. You will come across binary option markets intended for quite a few currencies, stocks, commodities and indices. For instance, the Chicago Board Options Exchange (CBOE), which is the biggest options exchange, provides the facility for trading binary options on two widely popular indexes such as the S&P 500 and the CBOE Volatility Index. Some of the other markets to look at are foreign exchange market, the commodity market to trade oil, gold, etc. Subsequently, you have to place the trade. Similar to standard options, buy a call option if you anticipate the market price to go up, or a put option if you anticipate the price to come down. In addition, select a strike price to buy the option. While selecting the strike price, consider a price that the market holds a reasonable prospect of exceeding within the time period of the trade. Finally, exit the trade. Binary options offer you all or no payment of money at the expiry. In simple words, if your call option surpasses the strike price at expiration or if your put option remains below the strike price at expiration, you get a preset amount of money; otherwise, you stand to lose the premium amount paid for the option.