Binary options are a form of fixed-odds betting on movements in financial markets. In simple terms, Binary options are tradable options that simply require you to predict which direction the price of an asset will move. Typically a trade in binary options involves a simple question of whether an event will happen or not, for example, will the price of a particular share or asset go up.
The outcome is either yes or no, hence the term binary option.
If the investor is correct, they ‘win’ and should see a return on their investment. If the investor is wrong, they lose their investment.
It is prudent to indulge in Binary Options only through licensed operators that are approved by the Regulatory Commission of the Country they are based in. If you choose to use an overseas company, then it is recommended to deal with a European Economic Area firm that is authorised to deal in binary options and is supervised by its member state. If you choose to use a non-European company then, again, it is essential you choose a firm that can show it is authorised and supervised in its home country.
Forex vs Binary
A major difference between forex and binary options is the variability. In binary options you know your risk and reward potential from the outset, in forex you don’t. But what you can do in forex is develop a trading strategy with clear stop loss and profit margins, so that the trade is sold as soon as one of these is hit, limiting the potential for a loss to escalate.
Simplicity and Transparency
Most binary option traders are attracted to the simplicity and transparency that comes with trading this instrument. To enhance the trader’s perception of transparency, one can explain the benefit of setting the boundaries of their trade themselves where they can predetermine the amount of risk that they are willing to take on. The better odds in forex trading are where you can win the full amount set in your profit margin, whereas in binary options a win typically only pays out 60% to 80% of your trade.
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