What are Binary Options?
Binary options are bets made on a stock value, market value (index), currency or on commodities such as gold, oil and wheat.
In each case, you pick a single asset and bet whether you think its value will rise or fall. They're called 'binary' options because there are only two possibilities for your bet; you're either right or wrong.
How do Binary Options work?
Every trade has a defined end period. You can request a specific expiry time yourself or choose one set by a broker. Trades can typically last 60 seconds, 30 minutes, one hour, a day or even a week.
You choose what to bet on and whether you think its value will rise or fall during the contract period you've selected.
If you predict an upwards movement in the market value you make what's called a 'call option', if you predict a downwards movement you make a 'put option'.
Binary options brokers will quote a payout figure that's usually around 75% to 95% of your original stake. The higher the payout on offer the more you stand to make from a successful trade but remember, you will lose your money if things don't go your way.
If your prediction is correct you get your original stake back plus the payout you were quoted. If you were wrong then you lose your original stake, but you can't lose more than that amount.
Binary options example trade
You choose a currency to bet on then, using your research and the best indicators for binary options available to you, decide whether you think its value will rise or fall during the hour contract period you've chosen.
The best binary options payout figure you find for a 1 hour trade is 78%.
If you stake £100 on the asset's value rising and you're correct, you get your original £100 back plus a £78 payout. If you were wrong then you lose your £100 stake.
How to succeed at binary options trading
First, find the best binary options demo account to get a free try at trading. This will help you get used to how binary options work as well as trial different platforms.
Many binary options trading companies will require you to put down a deposit when you open a binary options virtual trading account so choose carefully. When you start to trade binary options practice using every aspect of the trading platform so you're familiar with the terminology used and account management.
Once you're comfortable with how binary options trading works it's time to upgrade your binary options demo account into a full account and trade with real money.
Compare the best binary option trader platforms to find the best binary options system for you. Like all investments binary options trading can lead to losses as well as profit: however, by choosing a platform that suits you and fully researching each trade you can limit your risk and try to maximise your profits.