Unravelling the simple concept of “this or that”

Isn’t it amazing to find what a simple concept of “this or that” could do to trigger a whole new set of ideas, concepts, theories, ideologies, and even inventions Yes, you heard it right, inventions ! So whether it is a simple Yes/No, In/Out, Up/Down, Win/Lose, On/Off, black/white or anything that is quite “literally” the opposite, they have the ability to traverse from mere idea, mere words,  to mere numbers, to binary codes and even to trading!

Let’s  get started by playing my usual game of  “explaining in detail” with a small twist by “cutting it short”!

Long Story short

The idea of “this or that” was officially converted into numbers by a German Mathematician back in eighteenth century. This so-called idea was called “Binary Options” or the Binary system of numbering. Interestingly the output of this binary arithmetic  is only two sets of numbering, 0 and 1 with bases of 2 and 10 (the most widely used bases).  And today binaries form an integral part in advanced science and technologies. As a matter of fact, digital media virtually works on only these two numbers: 0 and 1, used extensively in digital encoding and decoding.

We would not be looking at the calculation part neither are we looking at how to code and decode with binaries. There are plenty of material available online which explains the algorithm of how binary works. What we would be dealing here is how this simple concept was transported to be consumed by the forex markets and if it’s really worth a shot!

Binary Options

Next time you hear a pair of opposite words, think of them as binaries thrown into a trading environment with values, 0 and 1. These values in other words could be considered as Buy/Sell and Win/lose in BO trading. Unlike any other trading, binary trading has two and only two outcomes to it- one could either WIN or LOSE a trade.

Those who are new to this concept might find it a little confusing. Okay before you label it as CONFUSING, let’s quickly straighten things out and get to the point!

 

  • To the Point

 

So what is a binary option? Binary Option or BO is a type of Options contract where the word “binary” means “two”. Here, the trader only predicts whether the price of the underlying asset will go up or come down and he solely trades or rather bets on the direction of the price movement within a preferred time frame. He does not actually buys or sells the asset but only bets on the price movement. So basically in binaries, we do not trade in the market but trade on the market.

 

  • Get familiar

 

Like we already mentioned above, in binary trading one typically trades on the direction of the price of the underlying financial asset would likely take within a fixed period, making the concept fairly simple and easy. And like any other options contract, BO comes with expiries or expirations. Here an interesting twist is that, trader can choose the preferred time period or decide what time frame for the expiry. But once a binary expires, the trade is closed and you either win profits or lose it all out in that particular trade.

Okay so far it sounds simple. But hey we have mentioned “financial assets” so many times. Let’s single out these assets or categories them assets with which Binary trading is possible.

  • Indices: Experienced and seasonal traders with a profound knowledge about markets and investments  typically choose indices to trade and invest on indices binary options..
  • Stocks: Similar to investing and trading on stocks, one could also select and trade on binary stock options.
  • Commodities: Commodities such Oil, gold and other precious metal could also be selected as an instrument to trade.
  • Currencies: Currency pairs is yet another instrument to trade binaries with. It is said that trading Forex binary options is simplier and easier especially to those who are new to binary options trading.

Now there is something called Call and Put which is yet another interesting element to Binary Options. To put it simply, a Call Option is one where the trader predicts that the price of the underlying asset will go UP within a certain period of time . Put Option on the other hand is one, where the trader predicts that the price of the underlying asset will go DOWN within a time range.

Additionally what one also needs to know is that there are various types of options one can chose to trade when it comes to trading binaries, starting from:

  • Up/Down: You choose this type of Options when you trade resting your predictions on asset’s price movements (ie whether the price of the asset will go UP or come DOWN) within a fixed time interval. On the expiry of the contract, if the the prediction is right, the trader makes a profit else he losses on that amount for which he had placed the bet.

 

  • Even/Odd:One can also trade on the last digit of the currency value either going ODD or EVEN within a selected time frame. If the last digit of the number turns out to be 0,2,4,6 or 8 then it is Even and if it is 1,3,5,7 or 9 it is Odd.
  • Big/Small: Traders could go as intricate as placing trades on the last digit of the price. Here, the last digit of the asset’s price is predicted to be either Big (5-9) or small (0-4) within the selected time range.

Having explained all of this, questions of risks and losses certainly pops out into one’s mind. Well the answer to all those questions is that, unlike any other form of trading, binary options cuts your risks and losses only till the amount you have committed to make that particular trade and not on your account balance. This means if you place a trade for as minimal value as $10, depending on the output of the trade, you could either win in the form of profit payoffs or lose the entire $10! This does not affect your trading balance. In simpler words, both loss and profit are capped! But this does not mean you blindly start gaming in binaries. Always test it on a demo account, and only after you think you are ready to go Live, trade live!

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