Things to know about binary options trading before investing
Most traders will be unaware of binary options trading as the concept is relatively new to the financial market. However, it is not tedious to learn this trading option. Getting into the market is also easy as you can find thousands of binary options brokers like iq option online. It will be better if you start investing in binary options after knowing the things explained in this article.
Working of the binary options market
The binary options market is not a separate financial market with separate instruments. Instead, it is a combination of all financial markets out there. For instance, you can follow all types of markets like the stock market and the forex market under one roof. However, the operation of trading will not be based on the purchase of these assets. Instead, you would purchase a contract named as an option that will state the predicted movement of the asset. Let us go through a real-life scenario to explain binary options trading.
- You are predicting that a stock “A” will move 10 points higher within half an hour.
- So, you can buy the contract predicting the same for the predefined amount.
- If the value of stock A is equal to or above what you predicted, you will get the predefined payout money.
- If the value is below your prediction, you will not even get a single penny.
In ordinary markets, you will even get a reduced amount if the price of an asset falls. However, you will get nothing in options trading. Hence, the risks are slightly higher in binary trading.
Commonly used words in binary options and their meanings
Once you get into the world of binary options without any experience, you will feel lost due to the strange words and terms you hear during your trading sessions. It is vital to know what is happening and hence, you should make yourself clear with the following words and their meanings.
Call – Sometimes, you will feel like or have analyzed that the price of an asset like a stock or a currency will go up in a few minutes. It could be because of any factor. So, you can choose the call option and place your money. It will help you win the payout if the guess is right.
Put – Sometimes, an asset will show all the signs of falling in a few minutes. In such a case, you can rely on your intuition or knowledge and buy the put option for that asset. So, your payout will be confirmed if the price of the asset falls.
In the money – There will be an expiry time for the option. If the price of the asset falls on or beyond the guessed value, your option is in the money and you have won.
Out of money – If your guess does not go right and the price goes against your wish, you are out of money and will lose whatever you have put in.
At the money – A stagnant pricing of the asset will be termed at the money.