These are a relatively new kind of investment. There are plenty of names by which binary options are referred to. FROs or Fixed Return options, all-or-nothing options and digital options are all names of the same investment. In this type of investment a person does not actually buy a particular asset but speculates the direction in which the price of the asset will move. Binaries can have only one of two possible outcomes which the investor knows very well at the time of investing. Binaries are options which either pay a fixed amount or the outcome is where the investor gets nothing on a certain condition getting fulfilled.
These investments are perhaps the simplest type of products on the market. Here the trader knows very well how much his or her profits will be or what amount he or she stands to lose. The word binary is a result of the two possible outcomes. One, when the results were predicted to be higher and it turns to be true and zero, when the opposite happens. When you put your money on traditional vanilla products there are a lot of complexities that you have to take into account. In the case of binary options you can take a very flexible approach.
The binary options due to the capacity to be flexible are gaining popularity on a global scale among all traders. If the trader is looking to speculate in the short term or wants to hedge his or her portfolio these binaries are a great idea. These options often help traders earn a higher payout in a relatively short period of time. There are a lot of underlying assets such as currencies, stocks, commodities and indices on which binary contracts are traded. Let us understand a few technical terms used in the trading of these options. Some very commonly used terms you will hear is expire “in the money,” “expire out of the money” and expire “at the money”.
For example in the scenario where a trader has made a PUT or CALL and his contract at the time of expiration has moved as he or she speculated it to then the binary options will be said to “expire in the money”. The othee scenario would be when the reverse were to have happened and the contract did not move as expected then the option would have been said to have “expire out of the money”. Another possibility is where the strike price will be exactly equal to the level at expiry; then the trader’s contract will be said to have expired “at the money”. The cash settlement is determined on what was agreed upon in the contract.
One important thing to keep in mind is that binary options are traded on speculation in a given fixed time period. An example would make it more clear. Let us assume that a particular asset A has a price of 400$ and you will need to speculate its movement in the next 1 hour. If you expect “A” to rise then you will buy a CALL option or a PUT in the opposite scenario. Now an amount is fixed on both the outcomes and cash settlement is made. Visit http://www.opciones-binarias.net/ for more information.