What is binary trading?
Binary trading focuses on using a simple "yes" or "no" proposition. Trades are placed on the basis of whether assets will be above a certain price at a set time. While it may seem simple, there are significant risks involved as you may lose your investment. Because of the simplicity of the process, traders have responded to the approach, with millions of trades being made each month.
How does the zero-sum game work?
Eventually, every option will settle out at either $0 or $100. If you have a binary option that is true, you will get $100. If it is a false result, you won't get any money. Every binary option has a potential $100 value, and it is a zero game, what you make is another trader's loss and what you lose is another trader's gain. Each trader puts up capital for their side of the trade. For example, you may purchase an option at $50. In that case the maximum investment you would be risking would be $50 if the trade settles at $0.
How does a bid and ask get determined?
The traders themselves determine the bid and ask as they begin assessing the probability of a particular proposition being true or not. So to put it in layman's terms, if a binary option has a bid and ask at 85 and 89, then traders have made the assumption that there is a high probability of an outcome of "yes" and the option will expire with a value of $100. On the other hand, if the bid and ask are near 50, the traders are not sure how the binary will expire, so you have even odds.
What is the time frame?
The trader chooses the time frame he or she wants. A trader will make selections from Nadex binary options. These options are set to expire hourly, daily, or even weekly. Day traders like hourly options because they can get an established return if they choose correctly even in a quiet market. Daily options expire at the end of the trading day, and can be beneficial for day traders or those traders who are looking to hedge other Forex, commodity, or stock holdings.
So what is the bottom line?
So to sum it up, binary options are based on a simple "yes" or "no" proposition with your loss or gain based on your buy in or sell price. This basically says at which price the option expires. So it will end at a value of $0 or $100. You should only trade with capital that you can afford to lose, because there is a risk for losing your investment. Trade with a demo account until you feel comfortable with trading binary options trading.
What are EFTs?
EFTs, which are exchange traded funds, offer flexibility and diversification to any portfolio, including those using binary options. EFTs are often commission-free trades, so you can add some diversification and flexibility to your portfolio quickly and without overspending. It is highly recommended to include EFTs in your portfolio regardless of your trading experience.