Binary-Options-Don't-Function-The-Same-Way-As-Stan84

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					   Binary options don't function the same way as
  standard options, even if they take the identical
  titles for instance "calls" or "puts". On the, their
      pricing and profit components are far less
 complicated basically because time decay is not
      really an issue. On the downside, they are
   normally very short term speculative positions
       based on where the underlying financial
instrumnent will be in an intraday timeframe. If it is
wherever you predicted, you enjoy a set payout; if
       it isn't, you lose most, but not all of your
                        investment.
The word "binary" means "two" so this class of options is appropriately
named There will only be two possible outcomes - they pay you they
don't From time to time they can be called all-or-nothing options, digital
options or fixed-return-options (in the USA) In a manner of speaking you
could think of it like betting on a horse race The thing is, there are only
two horses with this race - the first is called "up" the other "down" In the
event you pick the right one, you win; if not, you lose about 90 percent of
your outlay
 Binary options normally have a good return on risk percentage - often
way above 50 percent and this ultimately suggests that providing you get
more trades right than wrong, your bottom line will be a net gain Binary
options can also be used for short term range trading Rather than it
being your aim for the price to be below or above a specific price level,
you're now speculating that the price of the underlying will trade within a
selected range during an agreed time period These are called "hit or
miss options" The trader picks the price range and the timeframe and the
broker responds by creating a price
 If the price of the underlying trades within the price range until expiration
of the short timeframe specified, you've got a "hit" and get paid Binary
Options Pricing Like standard options, the pricing of binary options
includes the element of implied volatility which means you'll want to
evaluate the price offered to make certain there is value in the binary call
or put options you intend to purchase The important thing is to have a
strategy which includes a suitable return on risk for successful trades that
is adequate to cover the likely number of losses For instance, a minimum
70 percent profit on each successful trade and 10 percent loss on failed
trades means that you will want 6 trades out of 10 correct in order to
make an overall profit If you accept less than 70 percent ROI then the
mandatory number of profitable trades increases
 Binary options are never exercised so you will never be stuck with the
underlying financial instruments at expiration time The result is very
straightforward - you either get paid or you don't They are usually
European-style options since they will be only settled in cash at expiration
 The payout is either cash-or-nothing or asset-or-nothing In each case,
you receive cash, which is the value of the asset
 Binary options can be traded on stock indexes, currency pairs or
individual stocks Let's consider an example: Assume it's 11am and the
EUR/USD currency pair is trading at 1 3480 You believe that it's going to
close at or above 1 3500 by 2pm today
 Therefore you buy 10 binary call option contracts with that strike price, at
a cost of $40 per contract = $400 cost If the EUR/USD is at or above 1
3500 come expiration time, you receive $100 for each contract Below
that you receive nothing The expiration time comes and you're in luck
 Your profit is $1,000 less the $400 cost of the options, ie $600 You
risked $400 and made $600 which is 150 percent return on investment
Well done! The simplicity of binary options has made them attractive to
speculative traders and their launch in July 2008 has opened up yet
another way to trade options

				
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Description: a cost of $40 per contract = $400 cost If the EUR/USD is at or above 1