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Online Binary Option Trading

Binary options is a novel and interesting method of investing in the financial markets. Also known as All-or-Nothing Options, Digital Options, or Fixed Return Options (FROs), these new instruments allow investors to trade the direction of the markets. Rather than purchasing the asset itself, investors are only concerned with the asset's direction (i.e. whether it is heading higher or lower). Investors can speculate on the asset's direction within a specified time interval. Then, call options are initiated when the security is antipicated to move higher than the specified price by closing time (or expiration). Otherwise, put options are bought when the security is anticipated to move lower than the specified price at closing. The closing interval (or expiration date) to be selected when the call or put option is bought. Closing dates can be end-of-hour, end-of-day, end-of-week or end-of-month expiries.

Binary Options Costs

While investors would incur commission costs when trading traditional instruments such as the stock and currency markets, the binary option trading market does not have commission costs. Furthermore, there are no bid/ask discrepancies in binary option trading. While other markets are plagued with the overhead cost of the bid and ask spread, binary option trading is inherently free of such spreads. Instead, the cost to trade a binary option is well defined and is static in nature. That is, the cost of the trade does not depend on how far the price of a stock will move, but only depends on whether the price ends above or below a predetermined price point. In essence, by entering a trade, an investor's profit or loss potential is already defined by the hosting brokerage house. Therefore, the profit/loss calculation is much simpler. For every binary option trade, the winning percentage and losing percentage are set by the broker and these rates will vary from one broker to the next.

Binary Options Brokers

One reason why binary options are also called 'All or Nothing Options' is because the expectation on each trade is to double your money or lose everything by the expiration date. In reality, many binary option brokers will have overhead that limits your winnings but also limits your losses. As an example, one of the binary options brokers,, will actually limit your loss to 85% for any given trade and offers between 65 to 71% profit for in-the-money options (i.e. winning trades). Simply put, if an investor initiates a trade with $100, a winning trade will add about $71 to the original investment for a total of $171 to bring home. On the other hand, a losing trade will result in an $85 loss, thus leaving $15 to bring home at the end of the day. Unlike traditional markets where an investor may lose everything on a trade, will actually guarantee that you will not lose everything.

The ability to define profit limit and loss limit is at the discretion of the binary option broker and these limits will vary from broker to broker. In this case, defines the loss limit to be at 85% and it will "refund" 15% of the initial investment back to the investor for an out-of-the-money trade (i.e. a losing trade). On the other hand,, another leading online binary options broker, will refund up to 10% of the initial investment on losing trades and will offer up to 81% profit for winning trades . Additionally, in the event that the option expires at-the-money (i.e. the opening price is the same as the closing price), then the full amount is refunded to the investor.

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