Elements of Binary Options Trading

What are Binary Options?

Binary Options are a type of option that is based only on two results, yes and no. Which explains the word binary, meaning composed of only two variables. Trade futures are on the market, not inside the market.

If a certain commodity, stock index, or currency, has reached a certain price at a specific amount of time. Traders do not need to purchase the actual asset or asset alternatives, but rather, binary options contracts. Both rewards and risks are fixed.

A Binary Options trade is essentially composed of three elements: Expiry time, strike price, and payout offer.

Expiry time

The length of time from the moment an option has been made until it closes.

Strike price

The price the trader was able to enter at and this price will regulate whether the trade will win or not.

Payout offer

Refers to what the options broker offers in case prediction is correct. Some trades return a percentage in the case of a loss, usually 10 percent of the initial investment. The offer comes before the investment is made.

Payout offer is the return the options broker will offer.

Binary Options expiry categories

The expiry time is the length of time the moment an option contract has been bought until the time it closes. Binary options can last from short one-minute contracts up to one-month contracts. Like that of any online gaming incentive programs such as the bonus by 32Red Casino, binary options come with a certain period of validity before it closes.

There are three expiry categories traders can choose from.

Short-term expiry

Most binary options traded on a daily basis land on this category. These will last from one minute to a maximum of one hour. These carry high chances of revenue, but also higher risk. Binary options with shorter expiry terms should not be over-analyzed using current events; traders usually rely on technical analysis using charts and graphs.

Medium-term expiry

Medium-term options will last for several hours. This is where current event analysis can come into play as it can already affect the assets before the time of expiration. Real-time and technical charts also prove to be useful when trading options like this.

Long-term expiry

External events can hugely affect the movement of long-term expiry assets as these can last from one day up to several weeks. These are easier to predict hence risk is lower for the traders.

Closing early

Brokers offer traders the chance to close early before the expiry time has even been reached. This is useful for assets that have increased vulnerability with the chances of payout being lower for the trader. Typically, closing early options will suggest lower revenue.