I am sure you all remember I talked about Etrading online a few weeks back after being challenged by a friend to do some online trading. Well like any human I am guilty of getting sidetracked by another bright and shiny object and this time it appears to be binary option trading. Unlike with stocks and Etrading I know absolutely nothing about options trading so I am sharing my adventures here trying to track down what exactly Binary Option trading is. How you go about it, Risk versus return and value as an investment tool. Just another day in the office with a chance to learn something right?
This could end up being a big job as it feels a little complex so perhaps prepare yourself for a two part series here!
I am going to have to lean on the wiki a little here and borrow some of their writing to help me out. I felt the easiest way to do this is to borrow some of their terms and meanings and hopefully turn this into something we can all understand!
Option - An option is a contract to buy or sell an underlying asset at a particular time/date or pricing. Your buying the right to be involved in the transaction of this asset but not buying the particular asset right there and then. (I think I understand this)
Underlying Asset – Pretty much any financial asset (Stock, Currency Index, Commodity) that can be used as the basis for creation of Options.
Call Option - Relating to the terms of your contract / option a call is when your forecasting the asset will increase in value from the time of contract to time of option end. (Simple I think )
Put Option - Same as above but your forecasting the asset will drop in value instead of increase in a call.
Binary Option - Differing to the standard option available from Stock Exchanges, Binary Options have fixed profit potential. In other words you know investment versus potential reward before you even start. Another factor here are Binary Options having different trading time or durations compared to normal options (hourly to monthly for Binaries).
Something different with the binary options is the profit or return on investment information the start of the transaction. Yes you know what you will gain or lose before you even put any money down. Its something strange to wrap your head around and the one thing I am having trouble with myself is trying to compare the risk versus the reward. Being quite fond of the details that I am I like to know if this is high risk or low risk versus return type of investing. In other words I like to know how deep the pool is before I jump in.
I would like to point out I did notice all the online resources have a particularly strongly worded disclaimer that options trading can be a significant risk and you need to be aware like anything offering potentially high return that this needs to be an an informed, educated and understood investment and like anything I normally discuss I would like to always recommend you dont put all your eggs in the one basket!
So will I get involved in trading Binary Options?
Well there are bunch of mobile and online trading platforms a plenty available if you want to do some research on how to get involved. I am a firm believer in training, education and becoming informed before taking a step on investments though so perhaps some more study will be involved before this is something I would be comfortable doing.
The team at http://www.anyoption.
The Options Trading Wiki where I was trying to get an idea on some of these terms / principles
And same thing with the Binary Options wiki
Maybe I need to ask any of you regular readers have you tried Binary Option trading and had a good or bad experience? Had access to some great material on how this works and what your return on investment is likely to be?
As for me I need to go back to the books and study this one some more. Stay tuned!
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***Photo thanks to Stockmonkeys.com, opportplanet, matsubokkuri***