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What Is a Binary Option - Online Investing - Online Brokers

June 27, 2012 | Comments: 0 | Views: 140

Binary options is a new tool used for small investment vehicles that date back to 2008. This option allows for investors to receive a fixed return or certain percent of the investment back if the trade was done correctly. Investments are categorized into four asset sections for small investors that are unable to invest due to the initial high investment requirement.

The four asset categories include currencies, indices, commodities and stocks. Anyone that has ever thought of trading with indices, commodities and stocks is aware of the initial amount of cash that is needed. One thing that has always been available to small investors is trading in stocks. Some stocks have always been priced to high that it was until recently when small investors started to invest. Here is a perfect example of a stock that is priced to high, but makes it possible with these options. Google has always traded at a high amount and is close to $600 right now, but with binary options one can invest for as low as $10 per share.

If you want to purchase a binary option for stock when the trading price was $25 then you would decide whether to purchase an option for the stock to rise or decrease in value. You are "in the money" is your trade was successful no matter which option you chose.

The History

The history dates back to a little earlier than 2008 when these options were considered a bizarre investment to large investors. Large investors used this option to reduce any and all substantial losses against other investments. Back then smaller investors didn't have the access to these options due to the fact that they didn't know these existed.

It was in 2008 when some indices began to appear on the listings of binary options and ever since have grown at a pace that was unexpected. The number of online brokers that specialize in this type of options and trading has grown immensely.

How to Trade

Any investor can purchase an option through a broker. Brokers attempt to make the investment easy for trading with binary options. There are user-friendly interfaces that provide the current values and other options. There are also many assets that do not offer the broker options. Brokers separate the four asset categories by providing links for each one to help fully understand the trade.

When the investor access the different asset classes they will notice the different options made available such as the expiration of the option, the assets that are currently offered and the option to choose from the three types of binary options. Most brokers will pay out from 65 to 81% for the successful trade. For example if you purchased the option for $10 and you were "in the money" then you would receive up to $18.10 from the broker. This is receiving the original investment back plus the percentage. If you were "out of the money" then the broker keeps the total investment and you receive nothing. Many brokers today return up to 15% of the trade due to the steep and increased competition. The payout is fixed no matter if you were in the money a little or a lot, the same goes for the original asset in the period option, but some brokers do offer the option period as low as 5 minutes before the trade is complete. This option definitely makes binary options trading a very flexible tool.

Advantages of Trading

There are four key advantages to trading in binary options. Each one is separated and explained in detail below.

1.Binary options offer a decent size return on the investment. The loss that may occur is relatively small since the investment can be as low as $10 per share, but the percentage loss can be high as well.

2.The fundamentals of binary options are easy to understand and learn. Bizarre investments that were formerly known when binary options were first introduced are accessible to the average investor. The same four assets as discussed above are traded daily as binary options in multi-million dollar trades. The complexity the pros use when investing large sums is very difficult to learn. Small investors in the past were closed out from markets, so just a few of small investors learned the technicalities and basics of binary options.

3.Binary options are a tactical way to reduce substantial losses on the investment. Since the option periods are small they enable you to make a fast trade to balance losses you may have suffered from other investments.

4.Once you become more practiced at trading binary options it will be easier to make market volatility work on your side. Once can take advantage of quick movements with the same low risk as mentioned above with binary options.

Basic Strategy

1.The four asset classes available to binary options traders include indices, currencies, commodities, and stocks.

2.An economic calendar is ideal and can be accessed online. The calendar provides information on all economic announcements from the Government as they report on a regular basis of all data. This can be an advantage when it comes to binary options.

3.One should always take the time to understand the basics of both fundamental and technical analysis. Understanding the charts is technical analysis. For the more serious investor, there are tutorials on the web to learn what involves this process.


Binary options and the accessibility are fairly new to small or average investors. The rapid growth for small investors is an advantage for trading with a binary option. Whenever you come across a new form of ways to invest your money you need to do a little research before making the investment meaning you can follow assets and markets, but all brokers always try to simplify the investment. Due diligence is needed when making the trade.

It is recommended to seek out help or assistance especially when new to the trading market and dealing with this type of options. There are user-friendly sites that help direct in the right direction and provide the help that is needed. features over 30 broker reviews detailing what assets you can trade in, free bonuses, minimum deposit, minimum trade, rate of return, trading types, banking options, customer support info and if there's a bonus offered to new traders. We also feature great tutorials for both new and advanced investors with how-to guides and articles in our education section. Don't forget to take a look at our blog for the latest in financial news and reviews.

Source: EzineArticles
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