With a simple binary options trading strategy, an investor is able to know beforehand what is his potential gain or loss will be Its not limitless as is the case with forex trading. In fact, he generally has two possible outcomes for his investments:
Nevertheless, a third possible outcome exists also for an investor depending on the broker he uses. For investors using some binary options Brokers they are able to receive a 15% and even as much as 25% payback with anyoption, of their initial investment even though their binary option has expired out of the money.
A trader only needs to consider three aspects of trading before he invests his money:
- The underlying asset to invest with
- The direction of the price movements of the asset
- The expiry time of the binary option
This is the asset which the binary option is linked with. It can range from stocks, commodities, Forex or even indices.
Which direction the price will move will determine what kind of option that an investor will invest in. if the investor is of the opinion that the price of the underlying asset will go up, he should then purchase a call option. If he feels that the price will move down, he should then purchase a put option.
This is the predetermined time which a binary option will end. It can be hourly, daily, weekly or monthly based. Hence, the investor has some measure of control over his investment through selecting what types of asset to invest in, the type of option to invest in depending on the direction of the price movements and the expiration time.
Move on to Lesson 4- Carrying out a Binary Option Trade