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Please note that all trading involves risk. Only risk capital you're prepared to lose. Past performance does not guarantee future results. This post is for educational purposes and should not be considered as investment advice. A binary option is In fact a prediction of which direction the price of the underlying asset a stock, commodity, index or currency will move by a specified expiration time.
With BO, an investor doesn't purchase the asset - he is merely predicting the direction that the underlying asset moves. There are actually just two possible outcomes. The only thing that is matter is whether the prediction is correct or incorrect. A binaries trade usably involve three steps: First, you choose a trade expiration time, this is the time you want the trade to end.
It could be any time period between a minute and a week - usually it is within the day. Second, you choose Call or Put. If you think the price will end up above the current price: If you think the price will end up below the current price: Now that the trade is placed, you simply wait for the outcome. If the trade expires 'in the money', you make a profit.
If it expires 'out of the money' , you'll lose. Now you can see where the "binary" comes from, it stresses the fact that there are two possible outcomes to a BO, both of which are set and understood by the investor prior to placing a trade.
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