Options are a type of derivative whose value is dependent on an underlying asset

Options are a type of derivative whose value is dependent on an underlying asset. The contract is usually on the price movements of the underlying asset.  The binary option is a type of derivative option where the trader speculates on the price movements of an underlying asset. This is called binary options as there are two outcomes to the contract. The trader speculates either a rise or fall in the price of the underlying asset and goes for a buy/sell option. If the prediction works out in favor of the trader, he will earn a fixed amount. These options are often known by different names such as digital options, all or nothing options or fixed return options.

The two outcomes are either the trader will stand to gain from the contract or he gets nothing at all. That is the reason it is called all or nothing options. It is a type of regulated gambling. The option is successful for the trader if the given option expires “in the money” which means the price of the underlying asset on the future date is more than the strike price. The strike price is the agreed upon price at the time of the agreement. On the contrary if the option turns out as “Out of money” if the strike price is more than the price of the underlying asset at the time of expiry. Then the trader doesn’t get anything out of this arrangement.

Binary options settlement is usually in cash on the date of the expiry of the option. The option automatically expires on the agreed upon date or the expiry date. The date agreed upon at the time of the contract cannot be further extended. In this arrangement there no actual buying or selling of assets, it is just a wager or bet on the price fluctuations. If the trader expects a price rise he goes for a call option but if he expects a drop in the prices of the underlying asset he goes for a put option.

This type of trading involves a lot of risk as the name itself suggests that it is all or nothing. The trader is required to have a strong hold of the basics of derivative trading. He also has to been a keen observer of the market trends. It is often recommended to get professional help to deal with these types of securities initially. Top 10 Binary option demo is a website that helps the prospective traders on how to choose the best broker for online trading. Get redirected here to the best brokers available in the industry.