While binary trading is an exotic option, it’s not as confusing to navigate as you might think. In fact, it’s one of the easier trading options to understand, and it’s a quick way to make a potential profit if you understand the value of your asset.
The idea behind binary trading is simple: You need to decide whether you believe the value of an asset will be above a set price by a certain time. If you think it will, you purchase a call. If you think it won’t, you purchase a put. Every option settles at either $0 or $100. If the set time has passed and the value of the asset is above the set price, you get a fixed return. However, you’ll lose your investment if the asset doesn’t reach its set price.
For example, say you have an asset with a bid of $40, an offer of $50, and a question of whether the asset will be above $2,000 by 1 p.m. If you think the asset won’t get that high, you can sell for $40 right then. However, if you do, you can purchase the call for $50. If the option expires above $2,000, it’s worth $100. If you were right, you make a profit of $50 ($100 – $50 = $50). If you’re wrong, you lose your $50 investment.
Keep reading for another example of how binary trading works and to learn even more about this trading option. With a good understanding of the market, this might be the right option for you.