Binary Options - What Is A Binary Option?

In order to understand binary options it is useful to get a general idea of what a traditional option is and how it works.

The "regular" options are contracts where the buyer pays for the right to buy or sell an underlying asset at a given price, whereas a binary option is a contract where the buyer pays for the right to receive a fixed return in case the price of the underlying asset ends up above or below the strike price.

Indeed, binary options are not options in the traditional sense of the word, because unlike the original instrument, binary options do not give you the right to buy or sell the underlying asset, but instead they only give you the right to get a fixed return (usually around 65%-81%) .

So, let us say that you want to buy a CALL option on Google, if you buy a regular option contract, and the price of the stock ends up above the strike price by the expiration date (which is the 3rd Friday of each month), then you will be able to exercise the right to purchase the stock at that price regardless of its current trading price.

In this case your profit could come in two ways:

1. You could sell the "in the money option" before expiration and make a profit from the difference between the purchase price of the contract and the selling price (which will obviously be higher because it is in the money).

2. You could simply wait until the contract has expired and buy the stock at the price of the strike and then sell it at the trading price thus making a profit from the difference between the strike price and the trading price.

In both cases your profit will depend on the magnitude of the movement in the price of the stock.

However, it is important to note that if your contract expires out of the money it becomes worthless and you would lose 100% of your investment in this case.

Now, if you where to buy a binary CALL option on Google your profits would realize in a completely different fashion:

1. Binary option contracts do not expire monthly, but hourly or daily, which means that your profits (or losses) realize within these time frames.

2. A binary option contract will pay you the fixed return (usually between 65%-81%) regardless of the magnitude of the movement in the price of the underlying asset, as long as it expires in the money by at least $0.001.

This is the very reason why binary options have their name, because the outcome is always black or white, "all or nothing" even if your contract ends up " in" or "out" of the money by a cent, if you are in the money you get the full return (65%-81%) and if you are out of the money you get to recover only around 5% or nothing depending on the broker.

With binary options it will not matter if Google shares went up $1 or $40 above the strike price of your contract (assuming you purchased a CALL option), you will get paid the same return either way, whereas in a traditional option contract your return will depend entirely on the magnitude of the movement in the price of the stock.

So, binary options are contracts with a life span of one hour or one day that you can buy on certain assets like stocks, currencies, indexes or commodities, where your right is always limited to a fixed return in case they expire in the money by at least one cent.

Swing Trading Strategies - These Strategies Should Be Part Of Your Binary Options Trading Plan

As I indicated in a previous article, the "secret" to being successful at trading binary options is learning how to find price direction.

Again, with this new type of trading you do not really need to guess how far the price of the underlying asset will go in either direction, all you need to know is whether it is going up or down by at least $0.001.

I watched this video the other day and I thought it was worth sharing it with the Binary Options 101 readers, as it teaches a little bit of what swing trading is all about. This same techniques you see in the video can be applied for shorter term charts thus enabling you to find price direction in smaller time frames as well, which is really useful when it comes to trading binary options.

Enjoy and let me know what your think!

Binary Options Broker - A Look At EzTrader Binary Options Trading Platform

As of now, binary options remain what you would call an exotic product, and for that reason there are not really many brokers as you might see in forex or stocks.

Amids this scarcity, you can find one broker (EzTrader.com) that up until now has worked really great for me, because they have a very intuitive platform, a good variety of instruments on which you can trade option contracts, ranging from currencies to stocks, commodities and indices. You can place trades with as low as $30 an all of them are commission free.

But above all, this broker in particular provides a very speedy costumer service and it also offers the convenience of funding your account via transfer or even with a credit card thus allowing you to have your funds available for trading almost instantly.

You can see a little more about how EzTrader's binary trading platform works in this video:

Binary Options 101 FREE Trading Course Package - Learn How To Find Price Direction

In order to be successful trading binary options you really do not need to have a high level of expertise as you would if you were trading currencies, stocks or options in the traditional fashion, because trading binary options takes one very heavy burden off your back: the need for you to determine how far the price movements will go.

Nonetheless, you do need to educate yourself and learn two important things:

• How to find price direction

• How to manage your account

You see, binary options can bring you massive profits like no other form of trading, but for this to become a reality you must be capable of performing these two simple tasks, and the good news that achieving this goal is fairly easy.

Indeed, the really hard part about trading currency, stocks and traditional options, is determining -with a good level of accuracy- how far the price will move in your favor, whereas finding the market direction alone is a lot easier.

Now, another important thing you need is a good broker that makes the process of trading simple and straightforward, so you do not have to worry about anything else but your next trade. I personally recommend you to use EzTrader as their trading platform really keeps it simple and you can fund your account instantly with as little as $100 via bank transfer or even using a credit card.

With all of this in mind, I have put together a complete trading package that will show you exactly how to identify price patterns and direction easily, as well as how to manage your account so you can start trading right now with EzTrader.

In order to Gain FREE access to this complete trading package, simply fill out the form below with your name and email address. Once you submit your information, you will receive an email with all the steps you need to follow in order to complete your registration and receive your FREE trading package.

Binary Options Trading - A Quick Look At These Instruments

Binary options share some similarities with standard options, being one of them the fact that in order to make a profit from your contract you need it to be in the money by the time of expiration (unless of course you get a sudden and significant movement in price before expiration).

This means that like standard options, binary options also have a strike price which determines whether you are in or out of the money.

However, when you trade standard options your profits will depend greatly on how far near or in the money is your contract based on its strike price, so for instance, if you purchased and IBM November CALL option at the $130 strike when the stock was at $128.35 per share, you would have to invest $330 to purchase 1 contract and you would need the stock to go all the way to $133.30 just to break even, and believe it or not, a $5 movement in the price of a stock is a very significant increase, even for company that is trading above $100 per share.

Binary options on the other hand allow you to invest as little as $30 in a contract and they do not require that the price takes you all the way to a $5 increase so you can make a profit, in fact, when trading these instruments you are an absolute winner just by being 1 cent in the money or an absolute loser if you are out of the money by the same amount.

This is what defines the very nature of binary options, because upon buying a binary option contract you either win or lose, but you will not do just fine if you win, nor will you just take a small hit if you lose, no, you will either score big or lose big, it is "all or nothing".

Indeed, when your binary option contract expires in the money your return is anywhere around 65%-81% depending on the underlying asset, and these instruments are usually traded hourly, meaning that they expire not in a month (like standard options do) but within the hour.

This means that you can make 65%-81% of your investment in 1 hour, or you can lose up to 95% of your investment also in 1 hour.

Now, does this mean that binary options are too risky?

Well no, if you manage your risk and your money adequately you can achieve returns way beyond what you could expect within traditional options, without the need for your to be reckless.

What does it mean to manage your risk?

It means that if you have $2,000 you cannot buy a binary option contract worth the same amount, because if you lose you will wipe out your account in a single trade, which will leave you without the very thing you need to make up for your loses: trading capital.

Of course, if you win you might end up with $3,620 as well, but believe me, that is how you lose money and not how you make it.

A good risk and money management ideally involves limiting your risk to about 1%-3% of your account, because that way if you lose 1 or 2 or even 10 trades in a row -which is always possible- sure you will have taken a hit, but you will still be in the game, just like a good poker player.

So as long as you do not go crazy trying to get rich in one day with binary options you will not only be fine, you will be great, because the profit potential is just huge and the whole process of trading these instruments is a lot simpler because of what I explained before (you only need to be 1 cent in the money or less to get paid 65%-81% of your investment, which means that you only have to find the price direction, which is a lot easier).

Now, why do these instruments pay so much even if you are only a cent in the money?

Well, this is due to the very nature of these type of option contracts, you either get it all or you get nothing, which is why the returns on these instruments are fixed and they go from 65%-81% depending on the underlying asset of the contract.

This means that as long as the condition is realized (in this case that the price of the underlying asset closes at least $0.001 above the strike price -if it is a CALL option- or below the strike price -if it is a PUT option-) you will get paid the fixed return for that particular contract.

So, to conclude this quick look at binary options, you should take note of the following:

• A binary option generally trades in 1 hour periods

• The return of a binary option is around 65%-81 at the time of expiration

• Your trade is a winning trade as long as your contract ends up in the money by at least $0.001

The only "secret" to be profitable trading binary options is to have good sense of the direction in price, because remember, you really do not have to be right about the magnitude of the movement, you only need the price to move in the direction you anticipated.

If you have yet to start trading binary options, make sure you get my FREE trading package so you gain the necessary know-how to easily find price direction and manage your money wisely. There is really nothing more to it.