Over the past several years a new form of investment has surfaced which allows thousands of people to earn daily profits. Binary options have taken its place amid currency or forex trading and traditional stock market investing as a powerful way to earn profits and expand portfolios. Right now, many people are learning how this works in order to increase their daily income.

However, understanding how to trade binary options are not as straightforward as traditional stocks or even currency trading. There are substantial differences about the very structure that is unlike anything else. Yet, it is arguably the simplest form of investing that is available for most people.

In order to understand if this is for you, it is important to know what they are and how this system works. This will include potential advantages and disadvantages that make binaries one of the most interesting options when it comes to making money.

What are Binary Options?

Essentially, this is a form of stock investing that is very straightforward and simple to understand. They are called binaries because they operate as a “high/low”. A pre-set time period is put in place and the user chooses an asset or currency as the target of their investment. If the person wagers correctly on the direction of the option they chose, then they receive a fixed return rate for making a successful prediction. An incorrect prediction means that they lose their investment.

For example, let’s say that you believe an asset will rise in value to a predicted level over a pre-set period of time a “call” option is ordered. The wager they place will not only be paid back, but augmented by the fixed return level which can be upwards of 75% if successful. However, if the asset they have chosen did not rise to that level, then they lose the wager or investment that they made.

This works the other way as well. If you believe that the market value for a particular asset or commodity is going to fall over a pre-set period of time, then a “put” option or wager is made. If the prediction comes true then you earn a fixed return, otherwise you lose the investment.

This is the basic method that is used by people all over the world. It should be noted that in the US they are generally offered by individual brokers and not exchanges while brokers outside the US are not allowed to solicit US residents for the purposes of trade unless they are properly registered with a recognized authority such as the SEC for example. It is important in the understanding of how to trade binary options that they must be done with a properly recognized broker.

The Different Types of Trades:-

While the high/low trade is arguably the most common type where the “all or nothing” approach is absolute, there are other forms where people earn money on a daily basis. Arguably, most people get their start with the high/low format and then branch out to find the type that works best for their needs. However, the forms that follow are has an equally powerful potential to make a substantial profit.

One Touch: This is a rather interesting variation in binary options because instead of judging the value at the end of the pre-set time limit, once the value of the asset or commodity hits a pre-selected level it will pay off for the trader. For example, if a trader sets a “touch” value of $10 for the asset within a one-day time frame, if the asset were to reach $10 in the first hour then it is ended and the trader is paid a fixed return. This is regardless to how much time was actually left on the trade itself.

Range: This is another form where a range of the price that the asset will occupy for a pre-set time limit. If the price stays within this range, then a payout is delivered while if the price should go above or below the intended range the investment is lost.

The fixed payouts can vary as well offering from 50% up to 500% depending on the conditions. Generally speaking the higher the payout the less likely it will happen. Therefore, most trades tend to fall within the 50% to 75% range.

Advantages and Disadvantages:-

When it comes to understanding these options, it pays to know what the potential gains and losses can be. This is because it is literally a win or lose situation on each event which means you either get a substantial reward or you lose your entire investment. Yet despite this there are many people who make money on a daily basis using this system.

The simplicity is arguably the greatest advantage with no fees or commissions taking a chunk from your profits. In addition, you do not have to worry about the asset itself taking down more than what you have invested. Even if the value plummets all the way to zero you only lose the money that you put in. This is one big reason why more people are learning how to trade binary options.

However, the biggest drawback is that the reward is always going to be less than the risk which means that you will need to be right most of the time in order to earn a profit. This means that losing will cost you more than a winning. So you will need to be right at least twice to three times as often in order to make a profit.

In this seemingly difficult atmosphere, there are those who make a profit on a daily basis so it can be done. This is primarily because they often make several trades in a day and risk a very low amount of money. When it comes to how to trade options in the proper manner the winning strategy is to make several, low-risk trades where the rewards will add up when you win far more than you lose.

In the end, this is one of the most easiest and most successful methods to earn profits if you can master the research, timing and patience that is needed.