How binary trading works

Julie Brownlee, Fsp Invest, 24 Jun. 2015

Tags: binary trading, what is binary trading, how does binary trading work, trading, binary options,



If you want to give trading a go, you may think your options include single stock futures, contracts for difference and spread trading.

But there is a different form of trading you could consider. And it works in a slightly different way to many other forms of trading. It’s binary trading.

So how does binary trading work?

Read on to find out…



What is binary trading?


Binary trading involves speculating on whether a specific event will happen within a given period of time. Your profit or loss depends on whether this happens or not.

Unlike many other forms of trading, your profits and losses don’t depend on how much the market or a share price moves. They depend on something happening in a particular time period.


So how does binary trading work in practise?


Let’s say you decide you want to place a binary trade that the FTSE 100 will finish the day higher than it opened.

Your trading company price an up trade on the FTSE 100 at 61-66. Trading companies price binary trades between 0 and 100 depending on the chance of an event happening or not.

You enter the trade and risk R10 a point.

If the trade performs as you anticipate, you could make a profit of R340 ((100–66) x R10). If the trade goes the other way, you could lose R660 ((66-0) x R10).

If you decide it looks unlikely the trade will perform as you think, you can usually close it before it matures by taking out the opposite position.

Going back to our example above, you decide the FTSE 100 isn’t likely to close higher than it opened so you put a trade on taking the opposite position.

An up trade on the FTSE 100 is now at 52-58. So you decide to end the trade and cut your loss. You sell at 53, making a loss of R140 ((66-52) x R10).


The ups and downs of binary trading


This example shows you the pros and cons of binary trading.

On the plus side you know your potential profit and loss as soon as you put on a trade.

But the odds will always be on the side of the trading company. This means there’s a higher chance the trader will lose money over the trading company.

So there you have it. How binary trading works.

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