What are binary options?
Binary options is a type of high risk financial instruments that are based on an underlying asset. It is the market value of the underlying asset that determines if the trader makes money on the option or not.
Binary options are primarily used to speculate on short term market movements. Options can be as short as 15 seconds. Some brokers do offer options with longer maturities. It is possible to find options with a maturity of 1 month or more.
Binary options gives you a high return if they mature in the money. If they don’t then they are worthless and you have lost whatever you invested in the option. The options can be used to earn large profits from very small market movements. The return from a binary option that matures in the money is always the same regardless of how little or much the value of the underlying asset had increased or decreased.
Binary options can be based on currencies, indices, commodities or stock.
How does it work?
Binary options are traded using a binary options broker. The broker is the option underwriter. There is no third party involved in the transaction. The broker offer a selection of options. The selection of options and the return if an option matures in the money will differ between different brokers.
Your goal as a trader is to choose to buy options that you think correctly predicts the future. If you think stock A will increase in value over the next 5 minutes then you buy an up option based on that stock with a 5 minute maturity. You can decide how much money you want to invest in the option.
If your prediction comes true and the value of stock A has increased after 5 minutes then your option matures in the money and you will earn a large return on your investment. Often close to 90% or better. If your prediction doesn’t come true then the option is worthless and you have lost your investment.
You are not able to sell an option once you bought it.
Can you earn money?
Yes. It is possible to earn money trading binary options but it is not as easy as the marketing make it out to be. You need to be able to skill-fully pick which options to buy if you want to be able to make money. Simple buying options at random will lose you money.
You need to be able to devote time and energy towards analysing the market if you want to be able to make money.
Who should trade binary options?
Binary options are not for every one. Most people who try binary options end up losing money and should never have tried binary options. Binary options are not suitable for:
- Beginners who recently started investing money.
- Anyone who hope to make a fortune.
- Anyone who do not have time to dedicate to the trade.
- Anyone who think it is an easy way to make money.
- Anyone looking for something for nothing
Most people are best of by staying a way from binary options. However it can be a great way to make money for those who have the skill, desire and discipline necessary to become successful. It is good if you know how to use technical analysis but it is not a requirement.
Is it a scam?
No. Binary options are not a scam but it is a financial instrument that is designed to make the broker money. The broker has an edge that allow them to make money. Only skilled traders are able to beat the edge and earn money.
Do you recommend?
No. Binary options are high risk investments and I do not recommend them to anyone. You might have the skill needed to make money but you need to decide to trade on your own. I do not know enough about you or anyone else to be able to recommend binary options to you.