People interested in binary options trading must be willing to enter into a thrilling investment opportunity that offers a high level of risk with an equally high rate of return. People are huge fans of binary options trading because they can create a trade that will expire in one hour that nets them a huge profit. This may sound great to some people, but not everyone has the personality that is needed to tolerate the risks involved here. Even so, binary options trading can be fun and profitable for both those with a high tolerance for risk and those who like to take a more conservative approach to investing.
In order to know how to be successful in this type of market, people must first educate themselves on what it is to trade binary options. In binary options trading, investors are purchasing a contract that will have an expiration date. The contract will be for an underlying asset, and the trader will determine whether the asset’s price will increase or decrease. In the money trades are trades in which the investor predicts that the price will have increased by the expiration time. If the investor guesses wrong and the asset’s price decreases, the trade is called “out of the money.” Further explanation of the term “in the money” will not be needed because most people are very well aware of what that means.
For example, we will declare you to be a binary options trader who makes trades online. You will do this by choosing a broker who has several assets listed, and you choose the one you would like to trade. Then, you will purchase a contract. You have the choice of a call contract when you think that the price is about to travel higher. If you think that the price is about to decrease, you will purchase a put contract. Most contracts will expire within 60 minutes. However, you may be able to purchase a contract that is set to expire between five and 15 minutes later. Throughout the hour, you will notice that the price is moving up and down, but this does not tell you anything about where the price will eventually end up. All you will need to be concerned about is the price at the moment the contract expires.
The contract will mature or expire at the specified time. In the event that you chose the right direction, your trade would be in the money. The trade will have a return on investment (ROI) that can be anywhere from 150 percent to 185 percent of the amount of money you invested initially. We will explain this in another example.
You have discovered a new technology company with a stock price of $85 a share. You will be purchasing a call contract at the price of $500 that is set to expire in one hour. The promised payout is 160 percent ROI. If your prediction comes true and the company’s stock price increases to $86 a share, your trade will be in the money. Your ROI will be $800. This means that you would have made $300 on this one trade in just one hour. Now you must be able to envision why people become so enthralled with binary options trading.
It must be mentioned that you have the possibility of losing with your trades as well, and this one could have been out of the money. If this were the case, you would not have received any profits, and you would have lost most of your $500 initial investment. To minimize the chance of this scenario occurring, you will need to make sure that you perform all of the necessary research before you begin to trade.