Binary Options – what it is and how it works

If you turn to Wikipedia to define the term «binary options », you can find a complex explanation that will be difficult for a beginner to understand. Despite this, options are the simplest trading tools.

In simple words, a binary option is a contract in which the value of an international expensive asset is predicted for a conditional period. It can be stocks, currency, gold, oil. It is on this that the forecast is made - the price will rise or fall.

They are called binary because there are only two possible scenarios: the trader will either get something or nothing.

When did

appear

Binary options were first recognized in 2008 on the US stock market. Over time, they spread to all developed countries.

Some experts do not trust such transactions because of their similarity to rates and high risk. Therefore, in 2018, leading Internet corporations banned the advertising of binary options on their websites.

Operating principle

Binary options cannot be called a reliable investment tool, but you can make money on them. To do this, it is necessary that after the purchase of the contact, the value of the asset increases. At the same time, it does not matter how much the amount has changed, the main thing is that it should be more than at the time of purchase. The reverse situation is possible when using options to lower the price.

But if the forecast is not justified, the investor will lose his investments.

Classification of options

There are different options for binary options. They are all based on general principles, but there are some peculiarities.

Classic

This is the simplest and most popular option, which is called an option "Up/Down». To open a deal, the user must click one of two buttons. If the participant guesses how much the value of the asset will change, then he will return the invested funds and make a profit.

The main condition for success is a price change of at least 1 point.

«Above/Below»

This binary option differs slightly from the classical variety. At the same time, the participant must also determine the price change, but in addition, he sets the range of changes. This is a riskier deal, but the profit in case of success will be higher.

Only experienced traders should resort to this option, otherwise there is a high probability of failure.

"One touch"

The peculiarity of the transaction is that the participant can fix the predicted price before the expiration of the contract. To do this, he must touch the screen with the mouse, which is why the option got its name.

Such conditions are favorable for traders, but you will have to constantly monitor the situation on the market, control fluctuations in the value of assets.

«Without touching»

This option differs from the previous type of options by the opposite rules. The participant must specify the exact price, which will not remain until the end of the contract period. In this case, the reverse forecast plays a role.

Boundary («Border») and Range («Range» or «Corridor»)

This is a simple option. Before the expiration date, the price must be set within the selected limits.

When using the "Range" option, there are certain advantages. If the price goes beyond one boundary, it does not affect the final result, but the cost should return to the designated limits.

The out-of-range option is also simple. The price for the term of the contract must be outside the specified limits. This option is more suitable for a calm market, when the exchange rate does not change too sharply.

Tick

The difference between it and the classic one is that it is designed for a certain number of ticks or minor fluctuations in the value of the asset. For example, if an option is designed for 2 ticks, its validity period ends when its price changes twice. At the same time, the time spent on this is not taken into account. Sometimes the process takes only a few minutes.

The remaining conditions do not change – the trader must guess how much the price will change over the period of the contract.

«Spread»

It has no special differences from the option "Above/Below, but the participant must guess not only whether the price will rise or fall, but also determine the amount of adjustment in advance. As the task is more difficult, the risk increases.

Paired

This binary option operates on the same principle as the classical scheme. The difference is that you need to compare the value of two assets at different times. The merchant must predict which of the goods will bring more profit upon completion of the transaction. This is a rather complicated option.

«Stairs»

This option is characterized by high risk. The trader must choose the appropriate asset levels with different income. Profit will be obtained if the value of the asset reaches the specified mark before the expiration of the term contract.

This option differs from the "One touch" option in that the participant does not have to perform additional actions.