This website uses cookies. Our full cookie policy can be seen here. By continuing to use our website, you are giving your consent.

§ 1.2 What are binary options? Why they are so profitable?

Что такое бинарные опционы и почему они так выгодны

What are binary options?  How does Binary Options trading differ from trading in the Forex or stock market?

First of all those who used to trade currencies or shares can go on trading it in the form of binary options. This is because this kind of option does not have a new category of “Assets” that you can trade but is rather a new form of trading.

Let’s look at trading in the Forex market and find out how it differs from Binary Options trading.

During traditional trading, you may for example deposit $100 onto your trading account.  After depositing you will be allowed to trade, for example, buy 1000 or 10 000 EUR. Due to the fact that in most cases brokers offer leverage, you are able to trade with more than your initial deposit. They give a large sum of funds so that you can earn a large profit. However if you start losing your money you will not be able to lose more than your deposited amount which is the one hundred dollars that you deposited onto your account initially.

After you open a trade the price will move one way or the other. If you forecast its movement correctly then you will see after a while that your potential profit equals, for example, 5$, 10$ or 15$ depending on the amount of money and period of time you are trading. Otherwise your profit will take on a negative value. You need to close your position to take profits that is to sell what you have bought (in our case this is euro). Afterwards your balance will change depending on the accuracy of your forecast.

Everything is apparently simple but a trader at a traditional exchange has several tricky questions:

  • What level will the price reach? What level should I close the trade at? If you receive 10 dollars payout then you might want 20 dollars. If you receive 20 dollars payout you might want 50 dollars. Meanwhile a trend can change at any moment and the price will move in another direction approaching a zero value or even crossing it. That’s why traders are always overwhelmed by suspicions based on a struggle between desires to make more money and to save the funds they have.
  • What to do
      • What to do if the price went in the wrong direction? For example you decided that euro will go up and it started going down. As a result your profit is -5$. Will you close the position and keep your  95$ or maybe wait until the price goes in the opposite direction? This is another struggle that traders have.
      • Sometimes prices can spike on Forex charts giving you wrong results, which differ from the one that you had a second ago. This also makes traders nervous.

To avoid losses and be able to make a profit traders have to use features such as Take Profit (which means “taking a profit”: triggers when price has been going in the required direction for a long time and reaches a specified level – for example, 20$) and Stop Loss (which means “limitation of losses”: if you lose money on one trade the loss will equal 5-10$ but not a whole deposit amount). Placing orders is an entire branch of trading science which requires vast knowledge.

§ 1.3 Benefits of binary options trading →