Binary Options

binary

WHAT ARE BINARY OPTIONS?

Binary options, also known as “digital options” or “all-or-nothing options”, are over-the-counter (OTC) options that pay a pre-determined, fixed amount, depending on whether or not a financial event occurs by a certain time.

As the name implies, Binary Options can have only one of two possible outcomes and allow you to take a simple “Yes or No” approach. For example: Will the AUD/USD finish above the current price at the end of the hour? If “Yes”, the binary option settles in-the-money and you win; if “No”, the binary option settles out-of-the-money and you lose.

The binary options offered by Market Punter allow the holder to profit from price moves in individual currencies, individual shares, stock indices and commodities quoted on the world’s leading exchanges, without physical ownership of the underlying instruments.

A Call Binary Option enables the holder to profit when underlying market rises. Conversely, a Put Binary Option enables the holder to profit when the underlying market falls.

Call Binary Options (Up)

A Call Binary Option is a Binary Option that yields a profit for the buyer when the price of the underlying market (the strike price) at the expiry time is higher than the expiry price. Call Binary Options are for those traders who are bullish, and expect the underlying market to “go up”.

For example, you buy a $100 call gold binary option with a strike price of US$1,000 and a payout of 80%. If at expiry the gold price (the underlying market) is US$1,010, then your binary option would be worth $180 (i.e. $100 investment plus 80% profit of $80). On the other hand, if at expiry the gold price is below US$1,000, your binary option will be worthless and you will lose your investment amount.

Put Binary Options (Down)

A Put Binary Option is a Binary Option that yields a profit to the buyer when the price of the underlying market (the strike price) at the expiry time is lower than the expiry price. Put Binary Options are for those traders who are bearish, and expect the underlying market to “go down”.

For example, you buy a $100 put gold binary option with a strike price of US$1,000 and a payout of 80%. If at expiry the gold price (the underlying market) is US$990, then your binary option would be worth $180 (i.e. $100 investment plus 80% profit of $80). On the other hand, if at expiry the gold price is above US$1,000, your binary option will be worthless and you will lose your investment amount.

BINARY OPTIONS SETTLEMENT

Binary Options may be either American style or European style:

– European options can be exercised only on the expiry time, not before.

– American options can be exercised at any time up to and including the expiry time.

Market Punter offers both European style options whereby the Binary Options may be exercised on the expiry time, and American style options whereby the holder can ‘close out’ or sell an open position prior to expiry to take a profit or cut a potential loss.

BENEFITS OF TRADING BINARY OPTIONS

Some of the major advantages of binary options trading is that you know your exact maximum gain and maximum loss from the outset, a binary option does not require a margin, and you do not need to worry about stop losses or closely monitoring your positions.

Binary trading enables you to trade and make profits during flat as well as volatile markets. During quiet market periods, your potential profits from traditional FX, option and contract for difference (CFD) trading can be limited, since the amount you win (or lose) depends on how much the market moves. However, with binary trading, you are only speculating on whether an event will or will not occur (e.g. will the AUD/USD exchange rate finish higher than the current price in one hour from now?), so greater profits can be made in flat markets.

Binary options provide the perfect trading format for individuals looking for ways to trade short-term movements in international financial markets, while remaining in full control of their risk. More and more traders are finding binary options trading the most simple and enjoyable way to profit from movements in financial markets.

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