Basics of Binary Options Trading

A binary option is a financial option in which the payoff is either some fixed monetary amount or nothing at all. ... They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and fixed return options (FROs) (on the American Stock Exchange).. This form of currency speculation is formulated around the variation among exchange rates internationally. The Binary Options market is currently the world's largest, with an estimated $3000 billion turnover every day.

The primary difference between the Binary Options market and other markets is that there's no established location where this trading takes place. Binary Options is based on an extensive market of dealers which are scattered across all the major international financial institutions. It's a 24-hour a day market, and it operates as a sole mechanism, which is communicated with technology and networks, over the phone or computer terminals. This allows transactions and trades to be conducted instantaneously across the globe. 10% of the Binary Options market is comprised of electronic brokers today.

The most important point in Binary Options trading is settling sale-purchase operations concerning foreign exchange contracts with the goal of earning profit based on the fluctuation of currency value and subsequently exchange rates over a given period of time. The contract trading of exchanges on Binary Options markets is formulated around the precepts of margin trading and are conducted through international Market-Makers, which sell and buy foreign currencies at a certain price determined by the market state of the given national currency. The nature of margin trading is as follows: the trader/investor lodges the his resources to a deposit by a broker, which allows him to handle the directed credit, the leverage, which is ascertained on the collateral, as much as ten to 200 times more than the initial dedicated resources. The returns cannot fall below the initial dedicated sum, so working with a broker prevents the possibility of losses.

Margin trading encompasses multiple stages: that of the purchase of a foreign currency at one price, and the subsequent sale of that same currency at another, or the same, price. The first part of this process is called "opening a position", and the second is called "closing a position". When opening a position no actual foreign currency is delivered, and the investor commits to an insurance deposit which guarantees compensation for any potential future losses. Once a position is closed, the initial insurance deposit is returned, and any possible gains or losses are settled, which generally are equivalent to the initial insurance dedication. Furthermore, the deposit is often as much as 100 times less than the dedicated sum, which is allowed for the investor to commit to the trading position.