Binary options are a simple way of trading on financial markets. This type of trading is very popular among investors because it is fair. You know the clearly determined amount in advance – how much you can make or lose.
Binary options trading is also suitable for those who are new in the world of finance, because they can’t get into debt if they lose. Only the capital that they decide to invest at the given moment is at risk and there is no possibility of overdrawing their current trading-account balance.
Each option has a time of expiry (expiration). The period in which an option expires may differ – from 1 minute to several hours. The trader is not as interested in the price trend during the trading as he is in the price at its end. Once the option expires, we learn the closing price, and if it is as predicted, profit is gained.
We decide to purchase a binary option for Microsoft at the value of 31.4 and we speculate that its value will increase in 30 minutes. The option price is closed at 32.5 after 30 minutes, so the price has really increased and we make a profit.
The binary options trader’s goal is to correctly determine the trend which the option will have or determine the limit above which the price will be moving at the moment the transaction expires.