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One of the newest and most popular derivatives currently offered in the world of currency trading is the binary option. Binary options are simple to trade and limit the risk of the trader’s investment to the amount of money paid to purchase the option.
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Nevertheless, this type of derivative does not come without its drawbacks, in addition to its many benefits. Binary options are considered an “all or nothing” derivative and are often compared to placing a win or lose bet on a sporting event.
The popularity and scope of binary options has grown considerably since becoming widely available for retail trading on online trading platforms. In addition to currency pairs, binary options can now be traded on many major world indexes, commodities such as oil, gold and silver, and the common stocks of many international corporations.
What are Forex Binary Options?
The binary option is called “binary” because there are only two possible outcomes to a trade: win or lose. This means that the asset upon which the option is purchased must achieve a certain price or exchange rate level for the trader to collect their winnings, or conversely they will lose their entire investment or get just a consolation payoff if they were wrong.
Forex binary options are similar to normal forex options in that they have an expiration date and a strike price. Furthermore, forex binary options do not generally contain an early exercise clause like American style forex options that can be exercised at any time prior to expiration, so they are more like European style forex options that cannot be exercised early.
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