Binary options basics

Binary Options the Basics

Binary options are predictions of an underlying assets price performance over a pre-defined time span. To understand the simplicity of trading binary options it helps to grasp how trade on other trading markets usually works.

Typically in most forms of financial trading the traders will take physical ownership of the asset in which they are investing and the value associated to that asset is determined by the changing price on the market where that asset is traded. When the trader sells the asset back to the market the value obtained is determined by that market price at that time, if the price has increased from the time of purchase a profit is obtained and if the price has fallen a loss would have been made. When trading using this method it is important for the trader to closely monitor the price of the assets they are holding to determine when is the best time to sell their holding to maximise their profit or minimise their loses at the same time taking into account the market’s volatility. Binary Options trading simplifies the trading processes and decision making as you are simply predicting the assets price movement for a specific time frame and ownership of the asset traded is never taken.

The word binary stands for “having two parts“. In the simplest form of binary option trading all that is required when placing a trade is to predict the assets underlying price movement by placing either a “Call/Up” or “Put/Down” trade.

A Call/Up trade is executed when a trader believes that within a given time frame the price of an asset will rise above the price when the trade is initiated.

A Put/Down trade is executed when a trader believes that within a given time frame the price of an asset will fall below the price when the trade is initiated.

Selecting an asset is the first step of the trading process, and there are a wide range of assets to trade and it is always best to select an asset that you have knowledge and interest in. If you have knowledge and or interest in the movement of gold prices, you may choose to place a binary option trade in gold. The more familiar you’re with the gold market and the way prices react to news then the better your chances are of successfully predicting the movements of gold prices.

Many different assets can be traded using binary options and each binary option firm will list the available assets that they cover clearly on their website, the more common ones are:

  • Indices – Dow Jones, FTSE, Nikkei, DAX and the CAC
  • Forex – Combinations for all the major currency pairs around the USD, EUR, GBP, JPY and AUD
  • Commodities – Gold, Silver, Oil, Corn and Coffee
  • Stocks – Up to 100 of the biggest and most interesting companies in the world such as Google, Deutsche Bank, Coca Cola

Not all binary option brokers cover all the assets so it is important to check that your selected brokers provides trading in the assets that you wish to trade.

There are plenty of resources available online that provide both novice and experienced traders a valuable resource for learning and improving your binary options trading techniques and strategies and over time here at MarketsWorld we will be adding to our growing library of information.

Once you have registered and deposited funds into your trading account you first begin by selecting the asset that you wish to trade, you then select the amount you wish to trade, the length of time your trade is to run before it expires then you select “Put” or “Call” Your potential winnings on selecting a winning trade are known before you place a trade.

If you are not ready to trade with real money you can always experience the thrill of binary options trading by making use of the free unlimited/ No risk demo account option provided by MarketsWorld.