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Binary Options Definition

Binary option trading is a deceptively simple trading method . You either profit or lose everything depending on whether your price prediction is right . Can they provide big gains ? Yes . Can you lose a lot of money on binaries binary option candlestick analysis ? That’s more likely . There are winners and losers in every trade, but the reality is that most traders lose because they’re just gambling . And that’s exactly what binary options are for . I don’t trade binaries — I think there are better options out there . Are binary options a scam ? That depends on the binary options broker . Binaries are being outlawed in more and more places . Because of this, binary brokers are often found in countries with poor regulation . Don’t want to trade binaries ? I commend you… Regardless, knowing more about the market is always good.

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Table of Contents
  • 1 What Is a Binary Option?
  • 2 How Do They Work?
  • 3 Real-Life Example of a Binary Options Contract
  • 4 Pros of Binary Option Trading
    • 4.1 High Return on Investment Potential
    • 4.2 Known Risk and Reward
    • 4.3 Easy to Understand and Low Barrier to Entry
    • 5.1 Lack of Regulation and High Fraud Potential
    • 5.2 Big Loss Potential
    • 5.3 No Loss Prevention Method

    Introduction Binary Options Definition

    Binary Options Definition 1 © Millionaire Media, LLC A binary option is a type of options contract where you win or lose money based on the underlying asset’s price at expiration binary trading prediction software . Traders guess whether or not an option will meet or exceed an extremely short-term strike price by answering “yes” or “no.” That’s where the term binary comes from.

    In options trading, there are ways to refine your strategy and limit your risk. Binaries are pure speculation — essentially, just betting.

    And in betting, the house always wins.

    The binary even extends to your losses and gains binary options sports betting . American binaries either pay out $100 or nothing . Some people call them “all-or-nothing options.”

    Besides stocks, you can speculate on different kinds of markets with binary options contracts. Here are five examples:

    • Foreign currency pairs
    • Stock indices
    • Commodities
    • Crypto
    • Economic events

    How Do They Work?

    Binary Options Definition 2

    The binary options market works differently in different countries. American binary exchanges work similarly to sports betting, with lines and odds.

    Like sports teams, the “favorite” position on a stock or commodity is more expensive to buy but more likely to happen. Meanwhile, the “underdog” side of the transaction is cheaper but less likely to occur.

    American binary options always reward you with $100 if you get it right. So, the higher the buy-in, the less you’ll profit on correct guesses.

    The U.S. has two regulated binary options exchanges, Nadex and the Chicago Board Options Exchange (CBOE). You’ll find many more binary exchanges online.

    Be careful with online binary exchanges — they have even larger house fees.

    That’s the least of your worries… Many of them are outright scams and fronts for identity theft.

    Real-Life Example of a Binary Options Contract

    © Millionaire Media, LLC

    Need a real-life example of a binary options contract? Here’s one in action:

    Let’s say there’s a binary option on Tesla Inc. (NASDAQ: TSLA) shares being above $190 at 2 p.m. Eastern on March 7.

    Two hours earlier, when you entered the trade, it was chopping around $189…

    You think it will stay below $190, which is the most likely outcome. Nevermind that it’s currently below that strike price, just look at this downtrending chart:

    Since you’re taking the most likely position, the binary option costs $65. You’ll make $35 if you’re right, but lose $65 if you’re wrong.

    Uh-oh — the stock spikes mid-day. It’s sitting at $190.78 when it expires. You lose the entire trade.

    See why I don’t like this trading strategy? If you had been shorting Tesla, you’d either have covered during its lunchtime spike past $193, or held on through its close below $188. You would have made some money or cut your losses — but either way you wouldn’t have lost everything.