Real binary options
An option is a contract that gives the buyer of an option the right, but not the obligation, to buy or sell the asset at a predetermined price at a time in the future or over a specified period of time. However, the option writer has an obligation to buy or sell the asset in accordance with the terms of the option that was sold.
The underlying asset can be anything - stocks, commodities, currencies.
Today we are going to find out what real options are, the possibility to invest in real binary options in India and also how to trade binary options online.
Real binary options
Before the creation of the Chicago Board of Options Exchange (CBOE), i.e., before the standardisation of option contracts and the invention of the Black-Scholes option pricing model, options were traded in small volumes. Volumes were low, because information about trading options was not accessible and it was rather difficult. The classical method of investing into options was reduced to constant calls of the trader to his dealer. This would bring the buyer and the writer of the options together to make personal transactions.
On 26 April 1973, the Chicago Board of Options Exchange was founded. It was created as a subsidiary of the largest commodity exchange in the world, the Chicago Board of Trade. Today, it accounts for more than 51 % of US options trading and 91 % of all index options.
With the opening of the Chicago Board of Trade, which remains one of the world's leading options exchanges to this day, it was possible for anyone, physical or legal, to trade call options on shares. Then the exchange launched standardised option contracts, each for a separate share, of 16 shares of American companies. With time, the number of quoted option contracts increased, and with it, the number of exchange members. Thus, on CBOE, after the doubling of listed options, the number of members also doubled, reaching almost 600 members by 1974. American legislators also promoted options trading, allowing banks and insurance companies to include options in their investment portfolios and strategies. By early 1975, daily turnover already exceeded several hundred options contracts.
In 2010, the CBOE was transformed into Cboe Global Markets Corporation, which was listed on the NASDAQ in an IPO.
What has changed? Bids for option contracts can now be placed via a special communication system. Stock index options are particularly popular. The most common option contract is for the S&P 100 index. There are also options on sectoral indices, options on foreign stock indices and options on interest rates. The total number of index options is around 40.
Real options are traded on regulated exchanges and require the investment of considerable capital and the appropriate paperwork to buy or sell the option. Modern online investment markets have simplified this task by enabling you to trade binary options on online trading platforms, where registration takes a few minutes and the minimum deposit is a few dollars.
Binary options, which we can trade on online trading platforms, differ from real options in that we are not redeeming the right to own the underlying asset, but are given the opportunity to speculate on the price. That is, our job is to guess the price movement of the underlying asset.
Online binary options trading in India
In online investing, binary options trading is one of the most popular destinations. This financial instrument allows you to make significant profits with a minimum amount of time and a minimum amount of investment.
However, there is a lot of speculation and negative feedback surrounding binary options trading through online trading platforms. Many even claim that it is a scam. Let's find out why this is the case.
By definition, a binary option is a trade that generates a fixed income or nothing, depending on whether a condition is met at the time of expiry. Binary options are therefore also known as all-or-nothing options because they either make a profit ("all-or-nothing") or nothing.
On the one hand, online trading has made it possible for everyone to participate in investments because of the availability of the Internet in today's world. But on the other hand, it is the technical accessibility of investing for the general public, who had no previous experience in trading, that has led many to the false notion that option trading is very quick and easy. In fact, this is not entirely true.
One must always remember that investing is a whole science about the laws of the stock exchange and stock market, complicated financial instruments, fundamental and technical analysis, and so on.
Accordingly, without experience in this area and investing at random, you are unlikely to get a good result. And as an option is an all-or-nothing deal, the losses equal to the invested amount became the reason for the negative attitude to this financial instrument on the part of many beginning investors.
In reality, trading binary options is a really good way to make a good profit. What to do? First, find a reliable online binary options broker that offers acceptable and transparent trading conditions. Second - tune in to study carefully this unique financial instrument.
Below we will consider in more details where to start.
Choosing a binary options broker. Binary options trading platform
All transactions in the online investment market are done on an online trading platform which is provided to you by the brokerage company for operation. Therefore, to start trading binary options in India, first research the brokerage market of the country and choose a reliable broker. To do so, gather and analyze information about the available brokerage companies. Your intermediary in the online investment market should be licensed and have good reviews among experienced traders. Among the brokers that fit these criteria, choose the one that offers a trading platform that is more convenient for you personally.
When choosing a binary options trading platform pay attention to the following things:
- how comfortable you are with the platform. You will need to check out the interface, the availability and layout of the main options, the quality of the charts and the ability to make your own personal settings;
- the functionality and information value of the platform. You will need to analyse the market situation and make the right investments in order to work properly. A quality trading platform must provide complete and accurate information about the quotes as well as have the necessary trading options;
- commissions and transaction limits that are acceptable to you. Each trading platform sets its own minimum deposit, investment and withdrawal amounts and commission for specific transactions. You should choose a platform according to your financial capabilities and be aware of this information;
- have a feedback chat for current issues. Quality platforms provide active communication 24/7.
In addition, good trading platforms come with a tutorial section with investment videos, a blog, a chat room for feedback, a news feed, an economic calendar and a free demo account so you can test out all of these benefits.
The Indian binary options market offers a good selection of binary options brokers, so you can easily choose a quality trading platform.
Once you have decided on one of the platforms, sign up and open a demo account. Read below how to do it.
How to register on the trading platform?
Registration is standard for most trading platforms. Follow these simple steps to register:
- visit the official website of your chosen broker;
- locate and activate the "registration" option;
- fill in the registration form;
- confirm your registration with your email or mobile phone - depending on your registration details you will receive either an email confirmation link or an activation code via text message.
After these simple actions, your account is ready to work.
Test the platform with a demo account
Most reputable trading platforms offer the opportunity to open a demo account to practice trading for free. Be sure to take advantage of this opportunity. You will be able to try out different operations, different trading methods and different approaches, and thus develop your own trading strategy. To do so, your demo account will automatically be credited with a certain amount of fictitious money, which you can spend on these training operations. That is, you are not risking any real money during the learning phase and gaining experience.
Of course, such trading will save you from unnecessary risks, but also will not bring profit. In order to start real trading, you will have to activate a real account.
Real account activation
A real account, like a demo account, is opened automatically when you log in to the platform. Activating this account is easy - all you need to do is to fund it with an amount that is at least as realistic as the one approved on the platform. It is now possible to start trading with a few dollars, as most platforms have very low minimum deposit limits.
Funding your account is easy. To do this, activate the "deposit" option and from the list of available deposit options, choose the one that suits you personally. As a rule, it is either a deposit via bank payment card or via Internet payment systems.
The money is credited to your account instantly, and you can start trading immediately.
Binary options classification
Depending on which underlying asset you choose, an option can be a currency option, share option, commodity option, index option, futures option or interest rate option. Options can also be classified according to their expiration time (the length of the trade). There are classic options that expire between 5 minutes and 24 hours and turbo options that expire between 30 seconds and 5 minutes.
A distinction is made between American, European and Asian style options.
American style is when an option can be exercised by the holder on any day before expiry. That is, if the redemption can be made all the way up to a set day, then the option is called an American-style option.
European style - an option contract that can only be exercised upon expiry. That is, if the terms of the contract can be exercised on a certain fixed day, which is specified in the contract, then such an option is considered to be European style.
An Asian-style option is an option that is exercised at the weighted average price over the entire period of the option's life.
Exchange options are more often American options and over-the-counter options are European and Asian options.
Options are broken down into put and call options. Call options involve buying and entitle the holder to purchase an asset in the future at a specified price. Put options give the right to sell a specified asset at a specified price.
A distinction is also made between long term options and exotic options. Long-term options are open for more than one year. Exotic options are non-standard options whose features and descriptions can differ considerably from standard options. Exotic options fall into two basic types: options that depend on the movement in the price of the underlying over the life of the contract itself and options that are multi-options, which have several underlying assets and are priced according to the relative prices of each of these assets.
Binary options trading
As mentioned above, the essence of binary trading is to correctly predict the price behaviour of an underlying asset.
A call option is a contract to buy an asset before a certain date in the future at a price and quantity currently determined. A put option is a contract to sell an asset on a specific date in the future for the price and amount currently determined.
That is, if you have bought a futures or a stock and the price of the asset has gone down, then having a put option (right to sell), you can write off the available cheapened asset at the price specified in the option - the so-called "strike" price.
Similarly, if you have a short position in an asset and a call option (call option), you can close the position at the strike price if the price of the sold asset moves negatively.
So to trade binary options you have to choose an underlying asset, the time of expiration and the option type, put or call.
You can also make money on increasing volatility. Options can be bought not only individually, but also in a complex way, forming an options portfolio, which will earn options in a more non-linear way. So, for example, if you buy both calls and puts at the same strike at the same time, you can make a profit on any movement of the underlying, be it in case of rising or falling prices by an amount larger than the cost of buying both options.
The whole point of trading in the binary options market is to decide if the price of the asset will go up or down by the time you expire the contract. If you anticipate that the price will be higher than the current price then you go for Call. If lower, you go for Put. Then you need to figure out how to analyze the market, which factors to consider when forecasting the price movement and so on.
Besides the simple call and put options, some trading softwares offer more complicated options - for instance, you will only win if the price touches or fails to touch a certain point. They are so called - binary options Touch and No Touch. When you trade a No Touch Binary you will make a profit only if the price touches a specific level. While in One Touch trading we require that the price of the asset touches the specified level, No Touch involves the opposite. Profits in this case are only made if the price does not reach the level shown on the chart at any time before expiry. The profit depends on the distance of the target price. The farther it is, the lower the payout percentage.
How to make a profit when trading binary options?
Experienced traders use various technical analysis indicators as well as fundamental analysis to correctly predict the price behaviour of the underlying asset. And yet, even traders with an excellent track record and positive experience in binary trading make mistakes.
Trading binary options is an activity that allows you to make good profits, but it also involves certain risks. The above information gives you a fairly general idea of this financial instrument and is intended to show you just how many different kinds and types of options there are as well as how to trade them.
So we hope you will make the right conclusions, namely:
- trading binary options can really make very good profits;
- trading binary options is not gambling at random, it is an activity that requires study and experience.
Study binary trading by watching the video lessons on the trading platform. Put your newly acquired knowledge into practice by opening a free demo account. Let your trades be successful!