Binary options are currently the accessible financial products that provide traders with a possibility to make money on the correct forecasting of the underlying asset’s price movement. Despite the binary options’ simplicity, there are serious risks in the trading process, so we do not recommend traders to start trading without getting at least basic knowledge of binary options.
Binary options’ basic terms
Binary options can differ from each other by several basic parameters:
Contract’s type characterizes the distinguishing features of the tool, which will be traded. The working principle of all types of binary options is based on the price movement’s forecast: will the price be higher or lower. The following types of the binary contracts are distinguished:
- Classical binary option. This binary option involves the forecasting of price movement up/down.
- Touch. Complex type of option that can be profitable in the case of the correct forecast of the price’s movement up to the level determined by a broker.
- Range. Implies forecasting of the chart’s movement in the certain price range.
- Short-term options. It includes contracts that are bought for the short time intervals from 30 seconds to 5 minutes.
- Builder. It is a versatile financial tool that allows a trader to set the acceptable level risk of a deal by himself.
- Early closure options. Such trading allows a trader to sell a lot until the time of its closure runs out. Currently, brokers provide such possibility for the different contracts’ types.
Underlying asset is a lot that will be traded. We can mark four types of the underlying assets provided by the majority of brokers:
These are security papers of the stock markets.
Indices. This isthe special stock tool that includes stocks of the enterprises from one industry.
Currency pairs. Forex market.
Commodities. These are gold, silver, oil, and other assets of the commodity exchanges.
Timeframes (expiration terms). This is the duration of a contract on the option’s buying. In other words, it is a period of time a trader makes a forecast on. Brokers offer different variants of timeframes: from 15 seconds to a few months.
Profit and compensation. When a trader closes a deal (buys a lot), he already knows what a profit margin is. This fixed percentage floats from 67% to 700% from the investment’s amount. The profit’s percentage varies depending up the conditions provided by a broker for its clients. A trader is also entitled to expect compensation from a broker in the case of an incorrect forecast. The amount of compensation varies between 5% -15% depending up the policy pursued by the broker.
Additional tools depend up the type and the capabilities of the binary options broker’s platform. Among popular there are tools for the advanced sale of the option, extension of the expiration term, double stake, and other.
We have provided you with a list of basic terms that you can face during the working process. As you see, everything is fairly simple here. Nevertheless, we highly recommend you not to start trading until the more detailed familiarizing with binary options.