§1.4 Payout requirements in options trading
When buying an option you sign a contract which comprises several conditions:
- Underlying asset which is what you are buying: euro, yen, Apple shares, gold, etc. In practice it means what kind of chart you need to analyze.
- Amount of an option (its price).
- Option exercise condition (relates to the option which wins). For example, if you are buying an option with the opinion that euro will reach the price level of 1.4315$ in 30 minutes (while its current level is 1.4290$) the condition shall be fulfilled provided that its price will cross the level and stay above it until the expiry time.
- Time of expiration. To put it simply it is when the trade expires. It is a peculiar kind of the “moment of truth” when it is decided if you win or lose. It is notable that with binary options it doesn’t matter if a price has gone in the right direction immediately or it has been going in the wrong direction for a long time. If the price reaches the proper mark at the proper time then you will get a payout.
As a result Binary Options is rather simpler in its form because:
- You run the risk of a certain sum of money which is an option’s value. Whatever happens, you can’t lose more money than this.
- You don’t need to monitor the price until the time of expiration has elapsed. The only important thing for you is where the price ends up at the close of the trade. Moreover you can’t change the situation and therefore you will feel less anxious.
- A binary options trader needs to think only twice – firstly, before buying an option and secondly, on the expiration of the option to analyze the results and draw conclusions. The rest of time a trader does not need to think about it at all.
- If you win you can make a large amount of money
- If you win you can make a large amount of money immediately which starts from 60% of the option’s value.
- You need to specify only four parameters described above to buy an option.
Therefore Binary Options trading is rather simpler in its structure but you are able to make high profits from it if well managed.
In the next chapters we will study:
- How to approach binary options trading?
- How many trades should be made each day?
- What rate of winning trades is considered as normal?
- How to manage your balance more skillfully?