Trading binary options online involves making a bet on whether the underlying instrument (be it a currency, stock, index, etc.) will go up or down. Not only you need to make a bet on the direction, but also on the time within which the move will occur. If you think there will be a rise, you buy a call. To bet on a fall, you purchase a put.
As can be seen, binary options are somehow different from regular stock or index options. Trading binary options on currencies is also different from trading forex on the spot or using futures contracts. Nonetheless, trading binary options online offers access to a variety of markets. Even small bets of as little as $10 can be made with binary options. And your risk is limited to the bet you place.
To give an example, you can bet that 5 minutes from now S&P Index will close higher than it is right now. If you are right, you’ll get your bet refunded together with a pre-determined payout that was offered by an online binary broker at the time of the trade.
When it comes to fixed binary bets, you won’t be able to exit a trade. Instead, you’ll need to wait until it expires, and then either win or lose.
There are other types of binary options such as betting on whether the asset you’re trading will touch a certain price point, or stay within a specified boundary within a fixed period of time (rather than finishing above or below after option closes). The moment it happens, you win- even before expiration.
What’s more, there are other options as well- those that also allow you to close a position prior to an expiration of a binary option, but then the payout will change based on real-time price action of the instrument on which you made your bet. Then, you can close the position before the time is up and take a profit or loss at that moment. These options are offered by some spread betting houses as well.
To trade binary options, you need to make predictions, or high probability bets, on price movements. Knowing how to do it involves understanding of the markets. A typical binary options trader utilizes technical analysis tools such as charts and a variety of indicators.
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