Binary option trading resembles standard option trading in lots of aspects, but with one major variance. Binary options are founded on a mechanism where the utmost profits and losses are identified in advance. Due to this attribute, it is certainly not hard to estimate risk and payoff for any binary options trading.
Create an account with a broker. In case you already own a trading account that permits you to perform regular options trading, you will likely be capable of trading binary options too.
Pick out a binary option market for your trading. You will find binary options markets for several stocks, indices, currencies and commodities. For instance, the Chicago Board Options Exchange provides binary options on the CBOE Volatility Index and S&P 500. There are also markets for currency pairs such as EUR/USD or commodities such as oil and gold.
Start placing the trade. In case of regular options, invest in a call option if you anticipate the market price to go up or a put option if you anticipate the market rate to come down. Furthermore, you might be required to pick a strike price at which to purchase the option. At the time of choosing the strike price, opt for a price that the market has a reasonable probability of exceeding in the time period of the trade.
Binary options are named like that because, in contrast to conventional option trading, they are established on an ‘all or nothing’ payoff at expiration. This signifies that if your binary option expires over its strike price (Call), or underneath its strike price (Put), you obtain a prearranged compensation amount. If the option expires out of the money, you stand to lose the premium paid up for the option.
A large number of reputable brokers offer binary options trading. Verify with your individual broker to ensure that they facilitate such trading.