What Are Traded Binary Options?

Those of you that are already involved in the fast-paced, cut and thrust world of finance will know exactly what Binary Options are. However, for most of us the term means nothing. So, what are Binary Options?

In simple terms they are an all or nothing investment. You will either profit or lose everything when the option expires. There are two types of Binary Option - the Cash or Nothing and the Asset or Nothing options.

As with all types of investment, be it large or small, whichever option you choose will come with risks attached. Binary Options are a much simpler investment than most because you know, upfront, exactly how much you stand to lose or gain. There is not so much research involved in investing except you must know how the stock or asset is performing and has performed recently.

When you have done your research and chosen the commodity you want to invest in you then you have to decide how much money you are willing to risk. It is vital to note at this point that you do not own the stock or commodity you are investing in. You are purely gambling on its performance in the next hour, day or week. You choose the term of your investment.

Once you have made your choice you will then have to decide if you want a Call Option or a Put Option. With a Call option you are investing in the hope that the stock will rise above a certain point by a certain time. If the underlying asset rises between the time of your investment and the expiration, you will be "in the money". This means that you will gain a certain amount of profit, depending on the percentage stated at the time of investment. If the price falls, you will be "out of the money" and will not gain anything; you will also lose your initial investment.

A Put option is the opposite. You are banking on the stock price falling rather than rising. If you take this option and the price falls you will profit. If the price rises you won't. Normally, before you make the investment you will know exactly what the pay-out percentage is so you can work out what your gains, if any will be.
The Cash or Nothing Binary Option pays out a fixed amount of money if the stock expires "in the money". With an Asset or Nothing Option, you are paid on the value of the underlying asset. You will know from the outset how much you stand to gain in comparison to how much you are prepared to risk. This value paid will reflect the current underlying asset value.

Binary Options are a risk, as are any investment. You could stand to lose your entire investment within an hour and that is not a decision you should make lightly. You should always do your research and be prepared - profit is by no means guaranteed and a loss is more than possible.