The binary options are a rather new development in the scenario of stock trading and especially in the category of traditional options (Call and Put options). The binary options fall under the emerging category of digital or exotic options. Exotic options got its name because of its peculiar working system and binary options have a rather simple and peculiar system. Binary options as name suggests is binary optioned trading instrument which can be categorized into two namely cash or nothing and asset or nothing options.
Working of Binary options
Binary options similar to other options works on the same price factor of a stock price the difference being the nature of trading in which the trade is done on periodical manner. Now the user has two options in this system and he has to take a position in the market over the price of a share. A user gains from the system when the prices move in the direction as anticipated by the user over a fixed period of time which can range from hours to even as small as 15 minutes. Now let us take an example of where if I am a participant in the binary option market and I put $100 in a stock and anticipates that it will go up in the next fifteen minutes, so after fifteen minutes if the prices go up I will receive $100 dollars and vice versa if the prices go down and I will lose $100. These transactions can be done on the basis of cash or any assets. This creates the two categories of cash or nothing and assets or nothing. Assets or nothing category the user places a block of shares of assets instead of placing cash, this is only difference between cash or nothing and assets or nothing mode of binary options.
Binary options are apt for new participants in trading market and only ask for little knowledge of the working of share prices. The risk factor is the highlight of the binary option as the risk lover can take huge risk as huge risks can result in higher profits and vice versa.