HOW BINARY OPTIONS WORKS

How to Trade Binary Options

Every binary option trade is based on three essential elements: 

1. the underlying asset, 
2. the binary option contract 
3. the forecast or prediction.

The Underlying Asset 

Most binary option trading platforms offer binary options on a range of underlying assets, including stocks, commodities, currencies pairs and indices. As traders become more familiar with binary options, they tend to specialize in a specific underlying asset or area of the market.
The Binary Option Contract 

Binary option contracts typically last anywhere from one hour to one month, most brokers offers traders the ability to buy contracts that are even shorter-term—down to five minutes before they expire. To make accurate predictions, it is important to know exactly how much time is left before an option expires
The Forecast or Prediction 

The job of a trader or investor is to determine which direction the price of an underlying asset will move before its option’s time of expiration. Traders who believe that an asset price will rise should buy a Call option. Traders who believe that an asset price will fall should buy a Put option. Correct predictions can earn traders high returns that nearly double their investments.

Close Now 

The ‘Close Now’ ability enables traders to cancel an Digital option before the time of expiration. A trader does this when he believes that his option is not performing as he expected because the underlying asset he chose is not moving in the direction he predicted. For example, if a trader bought a one hour Call option and after 50 minutes he sees that the price of the underlying asset is beginning to fall after having risen for a while, he could ‘Close Now’ to insure that he makes a profit. On the other hand, if the price of the option has decreased steadily, he could ‘Close Now’ to cut his losses.
Roll Over

Feature enables traders to extend the expiration date of an option so that they can give an option a greater chance to expire in-the-money. For example, if a trader purchased a one hour Put option and five minutes before the time of expiration the price of the underlying asset has still not decreased as anticipated, for a one time fee the trader could extend the time of expiration to give the option the opportunity to be in-the-money.

 

 

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