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Binary options, also known as "all or nothing" options are a rather unconventional trading product that until recently was not really available for the average trader. It is only now that some brokers are making this trading opportunity a reality for the average joe.
Binary options owe their name to the fact that when you enter this kind of contracts there are only two possible outcomes, either you win or you lose.
Indeed, unlike a traditional stock or option trade, in a binary option you will not earn more or lose more depending on the magnitude of the movement in price of the stock or underlying asset, because in this type of contracts you will earn fixed payouts of around 70% as long as the stock or underlying asset's price ends up in the money by the time of expiration, which usually is within an hour from the time you enter the trade.
This means that you can actually get a 70% return on your investment in 1 hour, provided that the price of the underlying asset ended up above the price where you entered the trade (if you purchased a call option) or below the price you entered the trade (if you purchased a put option).
Achieving this kind of return trading stocks or even traditional options is almost impossible, because indeed, if you were to trade a stock, it would have to go up in price by 70% in 1 hour, something I have certainly seen, but only once or twice in all the years I have been trading.
As for traditional options are concerned, if for example you buy an IBM call option at the 130 strike (in this example the stock was at $126) you would have to pay $90 for 1 contract, and in order for contract to be worth 70% more in 1 hour, the price would have to go up about $3 within that time frame, which again, is possible, but not likely and even if it happens, it is extremely hard to predict the a price movement of this magnitude within such a short time frame.
That is why binary options are such a great investing alternative, because this type of trading simplifies your job to forecasting only market direction -and not magnitude of the price movement- which means that you will make money if you are right even if only by $0.001, just as long as your contract expires in the money.
Knowing how to find the market direction is really the key, and there are several simple methods that can help you read and find the market direction with great accuracy, all of them applicable to stocks, currencies, indices, commodities etc.
If you are new to binary options you can Gain FREE Access to a complete trading package that will teach you how to accurately find the direction in the price of any asset, currency or index, thus enabling you to be profitable at Binary Options Trading.
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