Binary options is derivative trading where the price of an underlying asset is speculated. It does not involve the use of any actual trading securities. Binary options attract trader as the offer fixed amount upon the win. It even offers the trader fixed risks and are even known by the name “fixed risk options.” One cannot lose anything more than the amount traded in the binary options by using binary signals.
Under the binary option, the trader needs to select the security that they wish to trade and expiry date. The trader may then invest in the binary option. If the price moves as speculated by the trader, the trader gets paid. If the movement of the price is in the opposite direction, you lose the amount invested.
Types of binary options
- Call/Put option: Trading of call/put option means speculating if the price of the security will close above or below the stake price. These are the easiest form of binary options.
- Touch binary options: It is further classified as touch/no touch option and high yield touch. In touch option, the trader predicts whether the asset will touch a specific price at the expiry date. In high yield, the trader speculates whether the price will touch the target price set by the broker.
- Boundary binary options: This binary option offers a range or a boundary for prediction. The trader must speculate whether the price of the security will close within the boundary or not.
Terms used in binary options
- Call option: A trader will trade at call option when they believe that the price of the security will rise in the value.
- Put option: A put option is purchased by the trader when they speculate that the price of the asset will drop in the value.
- In the money: When the price of the security moves in the direction predicted by the trader, it is considered as in the money.
- Out the money: When the price of the security moves in the opposite direction of the prediction, it is considered as out the money.