Two hard facts about binary options

August 3, 2014 07:43 AM

Simply put, a binary option is a type of investment where you select one option that can have two outcomes, which means you'll be right or wrong about your choice.

Binary options offer the potential to profit while having your risk defined.

Classified as an exotic type of investment binary options are extremely easy to use and understand their functionality. Basically they work on a “high-low” option based on a selective type of exchange rating. In essence you are trading what is called a fixed-return option that bases its price on stocks indexes, commodities, foreign exchange and other types of underlying investments. The option has an expiration date or set time, this is especially important on the analysis of the investment you might be about to make.

How can you make it work for yourself?

First you need to learn how to trade binary options.  Call and Put trading platforms offers an array of production and educational material that can help.

To understand it the best thing you can do is to imagine yourself in the situation where you have researched a market and need to make a decision on where you believe the market will go over a specific period of time.

To make it simple let’s assume your opinion is that the market is rising. You will then make the decision to purchase or as the industry says “Call”. This decision will only make money when the price of the given financial instrument you have bought rises above the price-point it was when you took the action to buy.

Now let’s turn it around and say you thought the market was falling, the decision is now to sell or in this case “Put”. Put is the opposite of Call, you've now got the option that states the market will start falling past the point you've bought the option. If that statement is correct you'll earn your money.

There are two important things you need to fully understand before you begin. The first is that this type of trade will resolve at a set time (that can be seconds, minutes, or even months), which conditions your trade to only be profitable or not over that timeline. The second thing is that your decision on the Put or Call option you acquire will make you money if you were right but you'll lose your entire investment if you were wrong.

About the Author

Rui Carreira is an analyst at He has a solid background in financial analysis and research with a focus on binary options. He is an enthusiastic learner and passionate marketing and finance speaker.