Risks and Rewards in Binary Options Trading

In UK, the number of traders in Binary Options has increased manifold. Binary Options are simple options trading which are growing fast due to online transactions. The two fold propositions of ‘call’ and ‘put’ makes it more straightforward than other complex and technical investing structures. It is on the account that most trades are based on investment structures whereas Binary Options trading is of speculative nature. As such, the fees, pay-outs, risks andrewards are different from other trading transaction. In fact, BO trading has a different investment process.

Here’s how this type of speculation work out. To trade in such options, one would need a platform. A platform could be the stock exchange, an individual broker or an online trading platform. Such platforms will allow a customer to invest an amount of money in a Binary ‘put’ or ‘call’ contract. To cite an example, a customer might be asked to invest $40 for a binary option contract that commit to 40% return if the stock price OF ABC is greater than $4 per share at a specific time. According to the result of such proposition i.e. yes or no, the loss or gain of such an enterprise is calculated. As in the case of ABC if the price is above $4 per share at the stipulated time, then the customer is entitled to receive the assured return and the binary option is referred to have expired ‘in the money’. In case, the outcome does not satisfy the proposition, in this case if the price falls below $4 then the customer may lose the deposited sum and the binary option is said to have expired ‘out of the money’.

Some variations in the Binary Options (see TradingBinary.co.uk)contracts allows customer to receive a small percentage say 4% on a binary option that expires out of money. But these variations are seldom found in contracts. Some binary options typically internet based trading platforms may overstate the average return on such speculation in regards to customer expectations. Another point worth mentioning is the misunderstood probability of 50/50 chance in such proposition. Although it is such, the pay-out structure is designed in such a way that the expected return on investment is always negative. This is so because if the option expires out of money than there is a 100% loss which outweighs the pay out where there might be a 40% profit.

Binary Options trading takes place within the bracket of $0 to $100. Binary betting allows traders to speculate with limited risks. And the options in such speculation are in diverse markets like Foreign exchange, commodities, shares and equity indices. Thus a trader who specialises in the bullion market would be able to successfully predict price trends in regards to gold, silver etc. This type of trading mostly appeals to the inexperienced trader as he knows the maximum profit and loss from the very onset. And the pro and con of it is that it does not matter if the price changes by 1 or 100 points. The trader stands to lose or gain the same.