When the payout is fixed to the underlying stock and it exceeds the threshold or the strike price, it is called binary options trading. In academic terms, there are two forms of this trading, essentially, the asset-or-nothing or the cash-or-nothing. All-or-nothing option is also called as the binary option, and is used in forex markets. It is called Fixed Return Options or FRO in the American Stock Exchange. The binary options are typical of the European styled options.
Buyers are usually given the trading agreement and are directly bought in the market. This type of trading is an unusual market tool as there are no liquid dealings for issuance and the termination. Since, the year 2008, the market has been presented with this basic version. Other platforms have emerged this year since January and it was expected that there would be 30 newly equipped platforms and other 70 of the underlying assets.
You cannot mistake the usual trading with binary options trading, as they are very different from each other. In the regular trading market, you are generally in the possession of the assets and hold it until the time of trading. However, in the case of the options trading market, you continue to trade based on the inconsistency of the underlying asset. You will be able to profit as a trader if you are able to accurately identify the price movement of the securities in the prevailing market conditions.
Traders who have an eye for details will be able to profit greatly from these options as they are flexible. Apart from the maneuvering of the security, the trader will be able to make decisions on the direction of the asset and the type of asset until its termination. The unknowns or the uncontrollable aspects of the trade include the movement of the asset to go beyond or lesser than the existing price or the strike price. In the case of an expected or predicted increase in the price, the buyer or proprietor of the option can take a call option based on the value of the security. This can be done based on the time frame that is normally at the end of the day, month or week. A put option is exercised when there is a fall of the strike price.
Most traders have been very profitable and successful with binary options trading due to its effectiveness as a tool.