Warrior Trading Blog

Binary Option Definition: Day Trading Terminology

Binary Option

Over recent years traders have started hearing about a new trading product, but there’s a lot of questions and concerns about what they are and how they work. Binary Options are a type of derivative that are considered an “all-or-nothing” asset and is comparable to placing a bet on a sports game.

When you purchase a Binary Option you either make a predetermined amount based on how far out-of-the-money your option is or you lose your entire investment at the time of expiration. There is no in between and is why they are called “binary”, because there is only two outcomes.

Binary Options are similar to normal options in that they are expiring assets but they are very different in just about every other aspect. You cannot buy one and sell it back at a higher price if it trades in your favor.

You have to wait till the expiration to collect your winnings or realize your loss. Traders have found them attractive due to their simplicity but given their lack of regulation by the Securities and Exchange Commission (SEC) they tend to carry more risk and may not be suitable for everyone.

How They Work

When you buy a Binary Option you must predict where a stock, ETF or index is heading within a specified time frame.

So, for example, if the SPY is trading at $225 and you think it will close the day above $226 you would buy the binary call option at that strike and if the SPY closes above $226 then you will receive your winnings. However, if it does not finish above $226 then you will lose your entire investment. It’s as simple as that!

Binary Option Pros & Cons

Binary Options have both good and bad qualities about them. What I really like about them is that they take the emotion out of trading. You buy it and wait till expiration and either collect your winnings or accept your losses.

I also like how simple they are to trade and that you’re risk is limited to only the amount you invest. If you have ever traded normal options then you will have no problem trading Binary Options.

However, what I don’t like about Binary Options is you can’t cut losses if the trade is going against you and you’re susceptible to whatever news comes out during your time till expiration.

I also don’t like the fact that it is not accepted by all brokers or exchanges or regulated like normal options making them a riskier product. However, they may become a mainstream trading product one day so familiarizing yourself with them may be a good idea.

Warrior Trading Pro Tip

Binary Options are generally unregulated and are more prone to fraud. Unless you completely understand and accept the risks involved then I would recommend sticking to regular options or stocks.

1 Comment

  • catherine savage

    November 14, 2017 at 11:39 am

    I have been scammed and scammed and scammed again. I invested with four binary companies and lost all of my investments totaling 290,000GBP. Then I was contacted by someone offering help – a company who specializes in binary recovery. I was scammed by them again. By the end of it all, I had lost all of my savings and I was in serious debt.
    I was desperate for help and that made me vulnerable to recovery scams. My husband is not around anymore and I have an 8-year-old son with learning difficulties. The pressure of being a single, working mother with a child who needs so much additional attention and support became overwhelming for me. I also felt too traumatized to trust anyone else and I was very afraid, but I had no choice other than to trust Geminihacks(dot)(com) They have been incredibly helpful and supportive and also very understanding about all of my fear and concerns they helped recover all of my funds back within a week using unethical means I feel quite, tremendously joyous about the decision to use Geminihacks(dot)(com) I really hope that others do not have to go through what I did, and I wish that I had realized before things were so bad that I was being scammed. I hope my story might help others to not be fooled the way that I was.

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