Option TerminalWhat are binary options?
Here you can find all the essential information about binary options, underlying assets and binary option trades we offer.
Binary options are the simplest financial instrument for trading globally known markets. Unlike traditional options where an option acts as a contract between two entities to buy or sell an underlying asset (for example, 1,000 ounces of gold) at a predetermined price and a predetermined expiration date, binary options are "everything or nothing" where it matters solely on the correct direction prediction. The potential return is set at the time of opening the order. As for traditional options, where it is not possible to know the amount of risk or trade earnings in advance, the binary options, you know these information in advance, and can determine the exact level of risk of the trade.
This means you will decide whether the price will go up or down for example in the next minute, minutes or hours. You select the amount you want to invest in this trade, confirm the trade, and just wait until the option expires.
They got their name from two possible outcomes of the investment. The options either earn or loose you a predetermined invested amount and it does not matter how much the price moved. Let's say you would speculate that the expiration price of an option will be higher than its current value. Then you only need the expiration price to be higher by a one single tick / pip, and you get a full profit.
What if the expiration price is the same as the execution price of the binary option?, in this case you will get back the invested amount in full.
Profits vary for different options. The range can be from 65% to hundreds of percent depending on expiration and type of option. Typically, short-term options (minute to hour expiration) offer an appreciation of around 80%.
This means that if you invest $ 100 in the trade (for example in gold) and you predicted the price movement correctly, you will get back $180: $100 back as the amount invested and $ 80 as your net profit.
What are underlying assets?
Underlying assets are expressed values of shares, commodities, indices or currencies from which options are derived. When buying a binary option, its monetary value reflects the current market value. The most significant assets are divided into the following categories:
- FIAT: all major fiat currency pairs EUR/USD, USD/JPY, GBP/USD, AUD/USD, etc.
- Crypto: the world's major crypto pairs such as BTC / USDT, LTC / USDT, XMR / BTC, etc.
- Commodities: The most traded commodities like gold and silver.
Types of binary option trades
High/Low Option - binary option
The most basic and simplest type is the High/Low option. With this option, you decide whether your selected asset and its price will grow or fall in the selected time period. So you will ask: Will the market price be lower or higher at the time of expiration than the current value? As we already mentioned, you make a full profit, if the price higher/lower (based on your chosen direction of the trade) by a single tick / pip at the time of expiration.
One touch - binary option
Does the market price of an underlying asset reach the specific price level before time of the expiration of the option? One touch option will earn you if it touches (or breaks) the selected boundary line at any time before the expiration date of the option.
Target prices (lines) are constantly changing with the development of the market price of the asset, but they remain fixed when the trade order is executed. The distance of these target prices is marked as "up / down boundary" and is indicated for each one touch option.
Range - binary option
Range indicates that options are traded with respect of a certain range lines. The band is the area defined by the current market price and a upper range line(upper band) or a lower range line(lower band). The trader can therefore speculate whether the market price at the expiration time of the option will be within the selected upper or the lower band. The boundaries of this band are listed for each Range option and are marked as "up / down boundary".
Spread - binary option
Spread indicates the type of the option where options are traded with a certain spread. The spread is defined by the upper and lower spread lines. The trader can speculate whether the market price at the expiration time of the option will be above or below of the selected spread line.
Quick Option - binary option
This type of the option is similar to the High / Low, but it is specific due to the short expiration time, as it can be one minute or even 30s for some assets. So you decide e.g. if in 1 minute the price will be higher or lower than it is right now. Expiration times are usually set as 30s, 60s, 2min, 5min, ... - 60min.