What exactly are binary options?

Binary options or digital options are speculative investment products that are particularly popular in England and the USA. But in Germany, too, more and more investors are discovering this way of speculating on the price development of various underlying’s.

Similar to CFDs, binary options were originally only used by institutional investors to hedge their risks. For some, this can be done through special binary options brokers Also used by private investors. Compared to many other derivative investment products, the biggest advantage of binary options is the simple structure of trading.

As the name suggests, there are only 2 options for the investor after the option has expired. Either the investor makes a profit or he realizes a loss. So you only have to predict the course of the price correctly until the option expires and you get a profit that can vary depending on the broker with whom the option is traded.

As a rule, the profits for one are in profit expired position between 65% and 89% of the invested capital If the investor was wrong and the price did not develop in the hoped direction when the option expired, if the investor loses his stake or, depending on the broker, receives a small percentage of his stake (up to 15%) back.

Binary options trade Example:

The DAX30 is at 10,000 points at 10:00. You think that the index will trade
higher than 10,000 meters at 10:15 a.m. and buy a call option on the DAX30 for 100 euros.

At 10:15 a.m. the DAX30 stands at 10,001 points. Your trade was successful and you get paid 189 euros from your broker. If the DAX30 had been below 10,000 points at 10:15 a.m., you would have 15% of your stake, i.e. 15 euros got back from their broker and realized a loss of 85 euros.

As you can see in the example, when trading binary options, investors only have to predict.
whether an index, a stock, a commodity or a currency will be one in a certain time frame.

If the investor’s assessment is correct after the option has expired, a profit will be realized that varies from broker to broker and usually ranges between 65% and 89% of the stake.

If the investor is wrong with his assessment, the option expires with no value or, depending on the broker, you get back up to 15% of your stake.

Advantages of binary options:

• Binary options are easy to trade
• Low minimum deposit
• Risk is limited to the capital invested in the option
• Profits possible even with minimal market movements
• Compared to normal options trading, less know-how is required
• The main disadvantages of binary options are:
• Brokers are usually market makers and set the prices at which trading takes place
• Profits are limited to the specified rate of return

Binary options can be traded on almost any product such as indices, commodities, forex or stocks , depending on the broker . The time frames until the binary options expire range from 60 seconds to a month or more.

Types of binary options

Call Options

With call options, the trader speculates that the underlying market will
rise after buying the option.

Put Options

With put options, the trader speculates that the underlying market will
fall after buying the option.

In addition, with most brokers, the trader can choose other options
to increase his profit.

More options when trading binary options

Touch Trading

Touch Trading is a new way of trading binary options. With touch trading,
the trader has to predict whether the traded product (share, index, commodity or currency pair) will touch
a certain price within a predefined time frame or not.
It does not matter whether the price is reached at the beginning, in the middle or shortly before the end of the
time window. As soon as the price touches the previously defined price, the
option is profitable and the trader receives between 65% and 89% profit Use.

Example

You have bought a touch option in the DAX30, which is currently quoted at 6000 points.

Their touch price is 6020 points. Now the DAX30 rises shortly after buying them.

Touch option to 6025 points and then drops back to 6000 points.

Since the price has once reached its touch level, your option is in profit and you get a profit of 65% -89% on your investment depending on the broker.

Range trading

In range trading with binary options, the trader tries to predict whether the
price will be quoted within or outside a certain price range after the option has expired.

Example

You have bought a range option in EUR / USD, which is currently quoted at 1.20.
The price range of the option is 1.10 and 1.30. They believe that when
the option expires , the EUR / USD will trade around 1.20; when the option expires, the price will be around 1.29
and has not broken through the range. This means that your option is profitable and, depending on the broker, you get a profit of 65% -89% on your investment.

Differences to Forex trading:

The profits are not limited in Forex trading and can be increased by setting stop loss orders or trailing stops and adjusted to the market
In comparison to binary options, positions in forex trading can theoretically be held indefinitely.

The automation of trading strategies is possible in forex trading.

Read more about brokers and learn about our trading instruments on our portal.