What Are Binary Options and How Do They Work?

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What Are Binary Options and How Do They Work?

When you’re looking at different investing options to choose from, you’re bound to come across something called binary options. This article will go over the basics of what binary options trading is and the risks associated with it.

What Is a Binary Option?

A binary option is a financial option that can either pay out a fixed price amount or nothing at all. When you buy binary options, you’re essentially betting that the price of the option will reach a certain point at a certain time, at which you sell it. You can either be right or wrong, which is why binary options are known as all-or-nothing options.

Binary Options vs. Options: What’s the Difference?

Unlike other types of options, binary options don’t allow you to purchase or hold the underlying asset. As soon as your binary options contract expires, you receive a fixed amount or nothing. Thus, binary options are even more risky than other types of options.

What Are Binary Options Signals?

Binary options signals are notifications that you purchase from a company or an investment advisor that tell you when and what binary options to trade. These signals can even come from trading bots and algorithms, and are very risky to purchase because there are lots of scam signals out there.

What Are Binary Options on Stocks?

Some types of binary options are based on individual stocks or stock indexes, meaning that traders speculate on the underlying stocks to guide their binary options trading decisions.

How Do Binary Options Work?

1. The Underlying Market

Binary option values are based on underlying markets. In other words, as global markets fluctuate, their prices influence how much binary options are worth. When you buy a binary option and speculate on the price it will reach, you’re doing so based on how you think a certain market will affect the option’s price.

2. The Strike Price

The binary options strike price is the price which you think the options will reach, at which you will sell them to make a fixed profit. If you are wrong about the strike price and the price of the options stays below it, you don’t make anything.

3. The Expiration Date and Time

The expiration date and time is when your binary options are settled into a cash value. If they surpassed the predicted strike price, you get paid your fixed amount.

The 4 Markets You Deal With in Binary Options

Forex

Forex is short for foreign exchange market and it is the market where currencies are bought and sold.

Stock Indices

Stock market indices, or stock indexes, are subsets of the stock market that are bought and sold as a group.

Commodities

Commodities are raw materials that you can invest in, such as precious metals, oil, natural gas, and agricultural goods.

Binary Events

Another type of binary options trading is binary events trading. For these types of trades, speculation is based on upcoming events, such as announcements, which can drastically affect the prices of binary options one way or another.

What Is Binary Trading?

Binary trading is the act of buying and selling binary options. You can do this via a variety of binary options trading platforms.

What’s the Minimum Deposit for a Binary Trade?

The minimum deposit for binary trades varies depending on the platform you trade on. However, it can be as low as $5 USD.

How To Trade Binary Options

1. Study different market trends
2. Sign up for a binary options trading platform
3. Decide which market you want to trade binary options for
4. Choose a strike price and expiration date/time
5. Make the trade
6. Wait for the binary options trade to expire and settle into cash

Binary Options Trading Example

Here’s an example of how a binary options trade might look: let’s say that a commodity, oil, is trading at $80 and you want to purchase a binary option for the market. You buy a binary option with a strike price of $85 and an expiration date and time of tomorrow at 1 p.m.

If the binary option goes above $85 by tomorrow at 1 p.m., you earn a fixed percentage or sum, depending on the terms set forth by the binary options trading platform you used to make the trade. If it stays below $85, you don’t make any money.

How Are Binary Options Regulated in the US?

Binary options are fully legal and regulated in the US, provided that you trade them on an approved US exchange. If you trade on an unregulated exchange, you are more likely to get scammed because they are not subject to the rules of regulated exchanges.

Is This the Same Outside of the US?

Different countries have different governing bodies that regulate binary options trading. However, the level of regulation varies greatly, and some countries do not regulate binary options trading at all.

Can You Get Scammed on a Binary Options Trade?

Though binary options in and of themselves are a legitimate trading option, there are many binary options scams out there, including fraudulent binary options brokers. That’s why you should always trade binary options via a registered and regulated exchange in your country of residence.

Unregistered platforms often operate outside the law, and can scam you in a variety of ways. For example, they may refuse to give you payouts or even manipulate data to make it look like you lost on a trade.

In other cases, binary options scammers have been known to steal credit card information and other financial information and commit identity theft. They can then use your sensitive data to steal large sums of money directly from your accounts.

There are also many binary options signal scams, in which the scammers provide bad investment advice in exchange for a flat fee. Be especially wary of trading bots offering signals.

If you think you’ve been scammed on binary options trading, contact Payback today. Our team of fund recovery specialists will do everything they can to get your funds back.