What are binary options

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wat is een binaire optie

Trading in binary options has become very popular in a short time. A lot of people even make a living from it. But what exactly are binary options? How are they different from normal options? And how can you make money with binary options? In this article we explore these questions.

Binary options (also called 'digital options' or 'all or nothing options') are a special type of options. (Are you not familiar with options? Please read the article 'what are options'.) As with ordinary options, binary options have an underlying asset, which can be a stock, but also, for example, gold, oil, the S&P500 index, or the US Dollar. How much you earn or lose with a binary option depends on the development of the value of the underlying asset.

The characteristics of binary options

Two key features of binary options are:

  • The option is independent of the underlying product. When the option expires, it does not mean that the underlying asset will be delivered. You only get the amount of money agreed upon in the option paid out to you.
  • There are only two possible outcomes (hence the name 'binary' or 'digital' options): up or down. It doesn't matter how much the underlying asset has changed in value. If the price at the time of expiration is above (or below) the opening price, the option pays out; If it is below (or above), the value is lost.

Given these characteristics, binary options are a lot simpler than 'regular' options (read also the article 'The difference between binary options and 'regular' options'). The moment you purchase a binary option, all important parameters are fixed:

  • The moment the option expires ('expiration').
  • The price above or below which the underlying asset should end ('strike price').
  • Whether you bet on a price increase or a price decrease ('higher' or 'lower').
  • How much the option pays out at profit (usually 80-90% on top of the amount risked) or loss (usually nothing).
  • The amount risked.

Because all these details are fixed, the only question you must answer is: does the underlying product go up or down? If you are good at predicting this, you can make a lot of money with binary options. And since you can set exactly how much money you are willing to risk at the purchase of the option, you can never lose more than you want to.

An example of binary options trading

Suppose you believe that Apple’s share is currently overvalued at $672,81 and will fall in value during the next trading day, you can then choose a binary option on the share Apple Inc.(AAPL) to take advantage of the expected price drop. The option has the following characteristics at the time purchase:

  • You choose an option with an expiration of 24 hours.
  • The strike price is the current price of $ 672,81.
  • You expect a price drop, so choose 'low'.
  • This option returns a profit of 87% on top of the amount risked and 0 in case of a loss.
  • You are willing to risk 50 pounds.

After you have closed the option, you do not have to watch the price any more. You can immediately focus on other options, or other fun things to do. The option expires automatically after 24 hours and the result is processed in your trading account. In this case, it appears that Apple shares initially rose slightly in value, but eventually fell to 670.24 U.S. dollars. That means you option was "in the money" at the time of expiration. You get 87% return on top of the amount risked, which means you get back 93.50 pounds; a gain of 43.50 pounds. Not bad!

Different types of binary options

There are some special variants of binary options (for example, 'touch/no touch' or 'boundary in/out') and some more advanced features (such as 'high yield' or 'early closure'). With those you have the ability to execute a more complex trading strategy. Would you like to know more about this, then please read the article 'Different types of binary options'.

Become a binary option trader

You too can make money with binary options

Are you already making a profit on the options market? You can earn a lot of money in a short time with binary options. And it is not difficult if you are willing to put in a little effort.

Do you want to take advantage of the opportunities that binary options offer? Then open an account with Binary.com. Broker Binary.com is one of the longest existing option brokers, and is known for its professionalism, excellent software, and reliability (read the review).

Novice traders can also take advantage of the free e-books and webinars on the Binary.com website, which will help you to improve your trading.

Start trading binary options now

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Trading in binary options is inherently risky. With binary option trading one can make a lot of money in a short period of time or lose a lot of money. The visitor to this website is deemed to be aware that he can lose his investment completely. Due to the risky nature of this financial product, it is not suitable for everyone. Aspiring traders who are unsure whether binary options trading is suitable for them are advised to solicit the advice of an independent financial consultant.

BinXC, The Binary Exchange, is an informational website about online trading in binary options / digital options / all-or-nothing options. We do our best to give accurate and reliable information, but we do not provide investment advice or financial advice. All decisions made by the visitor based on the contents of this website are at the visitor’s own risk and the sole responsibility of the visitor. Neither BinXC nor its owner(s) and/or associate(s) can be held liable for the outcome of such decisions.

This website is aimed at the Australian and New-Zealand market, and does not accept visitors from the United States of America. Most of the brokers mentioned on this website do not accept U.S. clients. The contents of this website are not valid for the U.S. If you are a U.S. citizen or are in any other way subject to U.S. law, you should not use this website.