Binary signifies two and hence these when associated with trading, produce two possible outcomes. In other words, binary options trading is considered a trading product where there is a contract between the buyer and the seller under which the seller agrees to pay a predetermined fixed amount in case of a predetermined strike price is reached at the time of the expiry. Thus if the trader is successful in his anticipation of the direction of the price, the contract is "in the money" else the contract is termed to be "out of the money". The trade being "in the money" is rewarded by a predetermined amount where as if the trade is "out of the money" the trader receives nothing. Here it is important to note that the trader has just to determine the direction of the price movement and not the magnitude.
Binary option trading can be carried on various assets like stocks, currencies, commodities and indices. This form of trading has come up as a mass market financial instrument which empowers the traders with a flexible approach to trading in comparison to the complexities involved with the standard and traditional vanilla options. It also can be helpful in short term speculation and hedging and can help in getting high payouts within short duration.
Now with the popularity of internet growing, you can trade binary option online too. New traders are entering the trading arena on a steady basis. Trading binary option online is facilitated by easy to use web based platforms that offer a host of features.
Advantages of Binary Options
1. Simple: the best feature of binary options trading is the simplicity associated with it. Whether an asset's price would close above or below is just what the trader has to predict. He is not concerned with the magnitude or the range of the extent or decrease of the price movement. It is only the direction that matters.
2. Limited risk: the trader knows the extent of the risk that he is taking. This means that he knows before hand what is his possible loss or gain.
3. Predetermined payout: the contract fixes a predetermined amount that is payable in case the trader is successful in his anticipation of the direction of the price movement. If the trade is in the money by even a single tick it is considered a successful trade and full payout is given.
Therefore binary options trading are a new age financial instrument that has eased the process of trading.