Trading Binary Options has quickly and firmly established itself as the easiest way to invest in the financial markets. Just simple yes or no investment decisions made on an assets’ price direction can generate large returns within minutes, however, with the application of some basic strategy to your trades you can greatly increase your chances of success.
Probably the most sound of all basic strategies a binary options trader can learn is that of the ‘Knock-On Effect’. This theory, sometimes called the Market Pull Strategy, is based on the concept that a movement of a certain option will have an effect – a knock-on effect – on another option. A good example of this is when a country and its currency rely heavily on something – Canada and the Canadian Dollar (CAD) relies heavily on Oil. So when the price of oil goes up – generally the price of the Canadian dollar goes up and vice versa. The Australian Dollar (AUD) and New Zealand Dollar are commodity linked currencies. That means when the value of Gold, Silver and Copper goes up, generally these two currencies tend to go up to.
Binary options can be defined as a contract which upon the fulfillment of a specified condition or better to say, price movement, pays to the trader a predetermined fixed amount depending on the condition of his contract ending “in the money” or “out of money” at the time of expiry. If the contract ends “in the money” the trader is paid the fixed predetermined amount but if the contract ends “out of money”, the trader receives nothing.
Basically there are two types of binary options, the “cash or nothing” and the “asset or nothing“. In the cash or nothing type, payout is some fixed amount of cash if the contract ends “in the money”. Whereas in the case of asset or nothing binary options, if the contract ends “in the money”, the payout is the value of the underlying security. Thus as we see, there are only two outcomes and this is what the name ‘binary option’ suggests.“Digital options” is simply another name for binary options,when the term “digital options” is more commonly used in the trading of Forex and in the interest rate market.
Considered as one of the fastest and most popular form of simplified trading products, binary option offers fixed odds returns, with a structured reward and risk ratio. Binary contracts are available on a variety of assets like stocks, currencies, commodities and indices. Binary options trading are becoming increasingly popular among traders all over the world because they offer a high payout within a short trading duration and also offer some hedging features.