The short answer is: The easiest to use investment instrument. Now let’s have a deeper look. For a better understanding see examples of binary options trades.
Here we will cover the context of options, but it is not necessary to understand it, so you can skip right to binary options below.
Let us start by defining what is an option in the world of finance. It is a contract which gives the owner the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specified date.
Basically it is just another way to speculate if the price of an asset will move up or down. Of course there are a lot of possible strategies that allow you to speculate on the price not moving, but the purpose of this article is not to explain them.
Why use options and not to enter the market directly by buying or selling the asset itself? Because they offer some advantages and of course some disadvantages. The big advantage is that when you buy an option speculating on the rise of the price, you cannot get stopped out because you either lose the price of the option, or you make profit. There are no stop losses that could get hit.
But classical options are rather complicated because you have to calculate a lot of things and take time into account. You can make just a partial loss or a small profit, your balance changes in time. Now let us see what are binary options.
Because option trading tends to be complicated, binary options were created. They simplify option trading to a level that allow anybody to take part. And make money.
With binary options you just choose if the price will be higher or lower in a certain time (expiration) and you invest. And it does not matter how much the price will be higher or lower. If you are right, you will make a relatively big profit when the option expire, if you are wrong, you will lose the money you invested in the option. You cannot lose more than you invested. You know since the beginning how much you can make and how much you can lose.
You can imagine binary options as a form of betting, although trading is more predictable than betting, you can learn techniques of trading, back test your strategies, analyze, study charts and trade profitably. In fact you have to have a trading strategy, because clicking without thinking will make you lose money.
How much you can earn with binary options
The payout varies from 65 % to hundreds of percent. The most common return is 70 – 80 % per trade. It means that if you invest $100, you can get a return of $170 – $180, which means a $70 – $80 profit. You can make as many trades per day as you want, so you can make thousands of dollars per day. The maximum investment in a single option depends on the broker, the lowest limits are at $1000, the highest at $20.000 per trade.
Types of binary options
There are several types of binary options, so you can choose what suits your trading style most. You can trade forex, indices, stocks and commodities.
Every binary option has an expiration time. It varies between 60 seconds, minutes, hours, days and even weeks. When you trade, you are speculating about the price movement according to the selected type of binary option.
High/Low binary option
Will the price be higher or lower than the current price when the option expires? You need it to be just one tick/pip/point higher/lower in order to make profit.
Above/Below binary option
Will the price be above or below a certain price when the option expires?
Touch/No touch binary options
Will the price touch/no touch a certain price before the option expires?
Boundary binary option
Will the price stay within a certain boundary or will it be outside this boundary when the option expires?
60 seconds binary option
Will the price be higher or lower than the current price in one minute? This is a specific type of High/Low binary options that allows you to make very quick profits in just 60 seconds.