In order to help new traders to understand basics about trading cryptocurrencies, CFDs, forex or binary options we have put all basic questions and answers on this Trading FAQ page. From here you can find basic information and then continue reading into more detail other articles on our site that provide more information and explain more complex concepts such as trading strategies.
What are Binary Options?
They are one of many different types of options one can trade on the market. Binary options unique property, that sets them apart from other kinds of options, is the fact that payoff can take only two possible outcomes, either some fixed monetary amount or nothing at all. Also, major difference is that investors don’t need to actually purchase the assets they invest in, they only need to predict future price trend
What are the returns for Binary Options trading?
Returns are amount of money traders get back from broker after successful trade minus amount invested in that same trade. Usually returns are shown in percentage. Some brokers boast with returns close to 90%, so it really depends on the broker you are trading with. Return also depends on particular asset and market volatility. Good thing with binary options is that trader know return amount before they enter the trade. Take for example a trader who invests $1,000 on a binary option with an ROI of 85%. If the option expires ‘In the Money’, then the trader receives a return of $1,850. If the Option expires ‘Out of the Money’, the trader loses the principal amount invested.
What is an Underlying Asset?
Underlying asset is any asset which trader is buying an option for. It can be a variety of goods, but also underlying asset can be stocks, currencies and indices (Nasdaq, Dow Jones, FTSE…).
For further reading about underyling asset visit this article.
What Instrument Types are being offered?
– One Touch – In this option, the investor predicts that the price of the asset will touch a specific value before the end of the given time
– High/Low – This is probably the easiest and the simplest option for trading. The investor only needs to predict whether the price of the asset is going to rise or fall within a given time. The investor then selects Call if the prediction is a rise in price and Put if it is a fall. Other name for this type of trading is Call/Put.
– No Touch – It works the same way as the CALL/PUT option only that in this case, you select the price at which the asset must not reach before the selected period
– Boundary Options – These options offer boundaries of a lower and upper definition with a rate that can exist inside or outside of its boundary
– 30 Second Trading – The option comprises prediction of a rise (Call) or a fall (Put) in the value of the asset in 30 seconds
Read more about instrument types in our article Genres of Trading Option
All named instrument types are offer by broker reviewed by Optionsreviews:
What is the meaning of Target Price?
Broker determines the target price (also referred to as strike price) from a set of live pricing feeds that are taken from the market. Target price/strike price represents the amount at which broker is willing to sell each individual option. Traders can buy an option on either side of the target price, this depends on the way trader considers that that asset may move in the market.
Read more about target/strike price in our article Binary Options Strike Price and Underlying Price
What is the meaning of Expiry Time?
The Expiry Time of an option is that point in time at which it will no longer be active. Then, all the investments made in that option are exercised, and clients will be allocated their profits accordingly. The Option’s Expiry Time is always clearly displayed directly in the trading platform next to the option.
Can I close an Option before Expiry Time?
It is possible to close an option before expiry, but how to do it and how long before expiry it can be done depends on broker. This option is usually available within few minutes after time of purchase. The broker adjusts the amount of profit based on the market price of the asset when the trader closes the position.
What is the Expiry Level?
The expiry level is the real value of the underlying asset at the moment the option expires. This may sound simple but it can be very complicated. Many assets are sold on several markets/exchanges at the same time. Asset prices change in real time. So, if binary trade is very close to being in-the-money, traders will want very much to know how the expiry level is determined. How expiry level is determined depends on broker’s policy.
What is ‘In the Money’ and ‘Out of the Money’ expiry?
In the money expiry means that trader has successfully finished trade and will receive profit (money). Out of the money expiry is naturally exact opposite and it means that trader has lost amount invested in the trade. Various trading instruments can have different definition when trade is in the money or out of the money. You can read more about that in our article Genres of Trading Option
What happens when an option expires at the Target Price?
Trader is asked to estimate whether the option will expire above or below the target price. But if exact target price is reached at the expiration trader doesn’t receive any profit, but retains amount invested in the trade. This occurs only with the High/Low option and is called ‘At the Money’.
What is an Investment Amount?
Invested amount is amount trader invests in specific trade. Invested amount is the basis which determines the option’s profit or loss. If expected return is 80%, investing 100 dollars will make profit of 80 dollars, but if trade expires out of the money trader losses 100 dollars (invested amount).
What is the Minimum Investment Amount Possible?
Minimum invested amount depends on the broker you are trading with, but mostly it is 10 dollars.
What is the Maximum Investment Amount Possible?
Maximum invested amount depends on the broker you are trading with, but most brokers allow at most 10.000 dollars trade.
What Is The Maximum Amount Of Options That Can Be Purchased Simultaneously?
Trader can enter an unlimited amount of options at any given time. Brokers have different policies, but mostly they don’t allow for all trades placed at the same time to exceed the maximum invested amount
What Computer Requirements Are Required To Trade Binary Options?
Any PC, tablet or smartphone with an internet connection will do. Usually java script muste be enabled for trading and sometimes flash player needs to be installed to view all web-site elements properly. No download of any extra software is usually required, but sometimes brokers can offer you certain educational materials for download. It is advised to use Google Chrome (v4.0), Internet Explorer (IE7.0, IE8.0) or FireFox (v3.5, v3.6) as your internet browser.
How Is My Confidential Data Protected?
All data transmitted from your computer to any broker’s web site is securely sent through the Internet using SSL encryption certificate.
How Can I Get Help If I Am Unable To Trade?
Any problems can always be directed towards broker’s technical support center. All brokers reviewed by Optionsreviews have very good support services.