Binary options trading are run with pre-determined loss and profit values. It’s easy, convincing and happens in real-time. This is the best platform for non-professional investors who have no idea about the long term investment strategies. Mostly, a web based arena is made available, where anyone with small amount of money can invest. As the trading sessions last a financial day at max, the risk is minimum. These types of trading platforms have shown rapid growth since 2008. More than 90 such platforms are operational now (January 2012).
An investor is allowed to predict the increment or decrement of stock value of an underlying asset. It may be a commodity or stock or currency. These platforms are user friendly and commission free. One can invest upon more than seventy underlying assets.
Reasons behind popularity of Binary Options Trading:
1. There are only two rules and two strategies i.e. to predict the loss/profit and win the money or lose it.
2. No prior knowledge in stock market is necessary.
3. Open to everyone: the investor himself can trade. As there is no need of a broker, the commission amount is also saved.
4. Trading is done with anything whose price varies. Choices include stocks, market indices, currency exchanges and commodities. Each of these choices has its own sub-types. So, plenty of choices are there. One can choose the one with which he or she is comfortable with.
5. Simplicity in trading: The trader just has to select an asset upon which he or she wants to invest. Then he or she purchases a call or put option. The former is selected if an increment with the stock price is expected and the later one is selected if the asset price is expected to decrease. Then the trading amount has to be put. Rest is up to the asset prices.
6. Logical returns: Binary options expire within few hours. So all the amount one can win or lose happens within these few hours. The profit lies mostly within 65-81 % of the total investment. So, one doesn’t have to wait for days or weeks for pulling out a profit. Winning and losing is decided within hours over here.
7. Low investments: All a person does in binary options trading is to guess the price hike or fall of an asset and investing upon it. Practically, he or she doesn’t buy any asset. So there is no investment limitation to trade. One needs just couple of hundreds of bucks to trade.
8. Limited risk: One knows the maximum amount he or she can lose in a session, better than anyone. So he or she can set this maximum loss amount. So if, by chance, one makes a wrong prediction, the lost amount is restricted. So losses are affordable in binary options.
How Binary Options trading is done?
Let a company, American Dollar has a current exchange ratio of 1:55 with INR. One wants to trade upon an option for INR 100 with two hours of expiry time and 75% payout. There are two ways it can play out.
1. If an increment in the price is expected, then one has to purchase a “call” option.
If the exchange rate of INR increases to 56 or more within those two hours then the investor wins INR175.
If it falls to 54 then the investor loses and gets nothing.
2. If a decrement in the price is expected, then one has to purchase a “Put” option.
If the exchange rate of INR decreases to 54 or less within those two hours then the investor wins INR 175. If it rises to 56, then the investor loses and gets nothing.