Basic Finance Care Finance tips
Binary option is a commonly used instrument for trading on the financial markets and making a profit from the price movements. However, all binary options traders should understand the risks and possible outcomes of this frequently misinterpret financial product.
Undoubtedly, binary options are very different than conventional options and have totally different kinds of risks, payouts, and commissions. The traditional options have completely different trading operations and different form of liquidity.
Generally, binary options outside the USA differ from the options offered by U.S. exchanges. Supposing that investor completely understands both possible results of these options, he could take into consideration trading with binary options, which can serve as a good alternative to traditional options.
U.S. Securities and Exchange Commission cautioned local traders about the possible risks of managing these options. With this Commission decided that companies registered on Cyprus, offering binary options for U.S. traders are now illegal.
What Are Binary Options
Binary options by itself have an extremely simple trading process and it is very easy to understand its functionality, yet binaries stand for so-called “exotic options”. High-low option – the most favored and also commonly used type of binary options, which gives the possibility to enter any financial markets in the world – indices, commodities and even foreign exchange!
Such options have a special indicator “strike price” and exact expiration time, therefore high-low options are called fixed-return options. In case the trader is betting correctly and the conditions are met – a price of the instrument at the set expiration time has crossed the proper side of the strike price and no matter how much the price of the instruments moved, trader obtain his investments back plus profit – fixed payout, disclosed before making a trade. If a trader making an incorrect bet, he loses his investments for this wager.
Trading with a Binary Option
Trading using binary options means always producing actual forecasts for the price movements. In a case in the future price will grow, the trader needs to choose a “call” option. In case trader assumes that markets will decrease in a specific period of time, then he will purchase a “put” option. To make a profit using a “call” option, the final price of the particular instrument at the set expiry time should be below the “strike price”.
Before making any trades, a trader can see all his risks, set payouts and corresponding expiry time. For the majority of the foreign options “strike price” means the current price of a chosen financial instrument. Widely known instruments are currency pairs (EURUSD, GBPUSD), shares and indices (S&P 500).
Thus, the main idea of trading with binary options is to guess where will appear the price of the chosen financial instrument at the moment of set expiry time – below or above the strike price.
Binary Options Outside The USA
Binary options as a trading instrument are risky and often misunderstood option. It is important to understand how it works, the risk associated with it, especially outside the USA.
The binary options outside the USA are different in many ways. They are quite different than what is available in the USA exchanges. Before you choose the binary option for speculating or hedging, it is important to understand the outcomes and, possibly the risks.
According to the Financial Industry Regulatory Authority (FINRA), investors need to be cautious when using the binary option trading platforms outside the USA, especially those promising quick ways to get rich.
One of the key difference between the US and the non-USA binary option is that the non-USA binary option is offered by individual brokers as opposed to the exchanges in the USA. Non-USA brokers are not allowed to solicit U.S. residents unless they are registered with the US regulatory bodies like the Securities and Exchange Commission (SEC) or Commodities Futures Trading Commission (CFTC).
The Upside and Downside of Binary Options
One thing that makes binary option a popular option is that you know the outcome. You know the risks and rewards before you invest, so there is no surprise in the outcome. It’s either win a fixed amount or lose everything. All you have to do is ascertain whether the asset is going up or down. The options for prices and expirations dates are numerous, which is another advantage.
The downside of a binary option is that the loss is greater than the rewards. On losing, the trader will lose more than what they earn when winning. The payout and risks vary from broker to broker and assets to assets.
When choosing a binary option outside the USA, be aware that the markets are unregulated. It is important to invest in cautiously.
The Bottom-line
Binary option is both popular and risky. It does offer many benefits, but it comes with many greater risks as well. But, with the right decision and calculated investment, you can earn easy money. Make sure you understand the rules to choose the best trading options.
