Trade in Groups

Binary options, also known as digital options or all-or-nothing options, are contracts which have only two possible outcomes - either they win, or they lose. Essentially, a binary option involves a fixed payout after the underlying stock meets or exceeds its predetermined threshold or strike price. Values of binary options payouts are determined at the start of the contract and aren’t affected by movement of the stock value.

Typically, there are two types of binary options: cash-or-nothing options and asset-or-nothing options. A cash-or-nothing binary option pays a fixed, predetermined sum of money providing the option expires in-the-money and nothing otherwise. Asset-or-nothing options return the value of the asset underlying the option.

Binary options can be either put options or call options. Binary call options pay the predetermined amount providing the underlying asset price exceeds the strike price at maturity, otherwise the payout is lost. Similary, binary put options pays the predetermined price if the asses price is trading at less than the strike price.

For example, buying a binary call option for $50 with an agreed payout of $400 will see the option holder receive $400 for every $50 dollars invested, providing the stock is trading above the purchase price of the option at maturity. If the stock is trading below the option price, then the investment is lost. Put options work in the opposite direction, with the option price required to trade below the purchase price at maturity.

Because there are only two possible outcomes of a binary option, they are often suitable for novice investors. However, large-scale financial establishments, hedge fund trustees and other market entities also use binary options as part of their investment portfolios due to their ability to allow traders to tailor their involvement according to market risks. Binary options are often traded by savvy investors and market speculators who are willing to run the risk of making a profit on a short-term contract by taking a stance on which direction a market price will go.

Foreign currency traders and investors might, for example, hedge their risk in currency markets by analysing one currency trend against another to protect against adverse currency movements, whereas traders and dealers of precious commodity metals, such as silver or gold, might seek to hedge their risk against weaker carat pricing.

Other examples of the use of binary options include homeowners who want to cover their risk against weakening real estate prices, and oil companies guarding against crude oil price increases which would represent in increased product costs.