The world of investments seems complicated and inaccessible to most people around the world. In reality, it is really quite easy to dip your feet into these vast and deep waters without having to become a finance guru. Whether you want to purchase some stocks, bonds, or try your hand out in the cheaper to enter forex, CFDs, or binary options, there are a multitude of different methods for investing in assets and financial markets. Today’s article will discuss Binary Options and how they might be the perfect method for you.
Is It All Binary?
In a technical sense, a binary option is a simple financial instrument or derivative-based solely on a yes or no question with predetermined fixed payouts or nothing. With binary options, you either come out winning exactly what you agreed upon and if your investment doesn’t make it to that agreed-upon value then you lose your investment completely. This function makes binary options unique because with most other forms of investment you never know how much you will win or lose upon completion.
Binary options contracts are struck upon answering of one question, will market Y be above the X price or strike price at X time. If you believe the answer is yes then you can buy the option. It’s really that simple, but don’t forget to know how a market will move will still require experience, knowledge and research.
So, what does a binary option look like? Let us use the example of the YTL/USD forex pairing for this example. The question asked for buying this binary option is if YTL/USD will be above the strike price of 6.97 on September 1, 2020. If you believe the volatile Turkish Lira will reduce in value to the US Dollar, then you can go ahead and buy this option, if you believe the lira is headed for a recovery due to new laws or efforts by the government of Turkey than you would deem this binary option not worth the risk
What About the Payout?
Like I said above, binary options pay a previously agreed upon payout when the question has been answered correctly. When your binary option concludes or closes, and you guessed correctly, you will receive your original investment and a bonus on top. Do or die approach to binary options are the reason most people consider them a true gamble. At the same time this is one of the greatest things about binary options as you will never lose more than what you invested.
Let’s dive into an example of how binary options work. For this example, we will use the question “will golds price per gram go above $63.53 by the middle of August?”. You choose to buy the option meaning you agree it will go above that price. So, you invest 100$ in hopes of winning $250. When your option concludes and gold is a $64.25, you have won your binary option and get the payout of $250. This money includes your original investment of $100 and your profit or winnings of $150. At the same time if gold were to fall below $63.53 at the end of your option, then you lose your entire $100 investment
The gamble like investment style of binary options is the reason for the heavy regulations placed upon binary options. The Commodities Future Trading Commission protects investors through regulations from the countless fraudulent binary options in the market. As always it is on you to do the right research and set yourself up to be safe when investing your money.