#options newbies

So as this blog is about binary options it makes sense to take a look at what they actually are.

Basically binary options are a form of financial investment/speculation that can be used to make profits from forecasting the short term movement of financial asset. They can be fairly easily explained as in their basic form there are only two real outcomes that can forecast.

When you purchase a contract the price of the asset is noted by the broker, and you then speculate whether the price will move either higher or lower by the set expiry time on the contract.

Here's an example -

Lets take the US stock market. When you open the contract at 14:05 it sits at say 11,000 (a nice round number). You chose to place your contract to finish at 15:00. Now all you have to do is predict if it will be above or below this level by the 15:00 expiry time. If you choose the right direction then you win. Simple eh?

Well that's not the whole story. But I'll go into that a bit later. For now let's look at  what this really means.

With any form of investment you actually purchase an asset. So for example, if you invest in stocks you are actually buying a stake in the company. You have a real asset (shares) that you own. They are yours to do with what you please. Of course the objective is that you hold onto them and sell them hopefully for a profit.

However when trading digital contracts in the world of binary options you never actually own anything. In reality you are simply wagering a bet on the price movement that you expect to see with the broker. Now this has both positives and negatives. 

The good news is that you can make short term speculation on asset moves without being tied to having to actually invest in the stock. It also means you can make profits a lot faster than when using many traditional forms of investment.

The downside of course is that you don't actually own anything (!) and if you don't call the market correctly then you will lose what ever money you used to purchase the contract.

To make these contracts more enticing to traders brokers offer very high returns. The standard contract pays out in excess of 70% with most brokers. This is a fixed return that doesn't change and can of course, be earned in less than an hour.