What s the difference between binary options and day trading?
I personally use six different brokers for trading and recommend all serious traders to open a few accounts to different brokers in order to have a good variety of assets.
An option is a financial derivative that gives the holder the right, but not the obligation, to either buy or sell a fixed amount of a security or other financial asset at an agreed-upon price (the strike price) on or before a specified date. A binary option, however, automatically exercises, so the holder does not have the choice to buy or sell the underlying asset .
To trade binary options you don’t have to buy the asset itself — you buy the option contract, and it is much cheaper. For instance, you can buy an option for stocks of a well-known company for only 50 USD. And if you’d like to become an actual shareholder of this company, you’d have to pay more than $500 for every stock. In other words, binary options trading allows you to earn profit in ways that used to be impossible.
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Let’s look at an example. Assume you want to buy 1,000 units of Cisco stock. Cisco is currently a $ per share, and you think that it will go up to $. Buying this quantity of stock would typically cost you $23,000 up front, and if Cisco drops in value, you stand to lose a lot of money. But if, instead of buying the stock in the traditional sense, you want to exercise an option, your investment will be much smaller. Assume you can find a six month option a $ per share. When the price reaches your goal of $, you can use your option rights and see a profit of $3,000.
You can buy binary options on major market indices, foreign exchange rates, commodities and share prices. You can choose the expiry date, however, contract times are usually very short, from a few minutes or hours to a few months in the future.
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The underlying asset itself does not trade and there are no shares to be bought or sold. SPX is a theoretical index whose price is calculated as if it were a true portfolio with exactly the correct number of shares of each of the 500 stocks. Because the market capitalization of most stocks changes from day to day, the list of the 500 specific stocks in the index is updated periodically.
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After analyzing a specific asset, oil for example, you believe the price of oil will be above $45 within an allotted time frame. Of course, your understanding is based on a thorough analysis of the price of oil. If you think the price of oil will go up, you purchase a CALL option. If you think the price of oil will go down, you buy a PUT option.
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Binary options are fixed risk contracts. This means when you place a binary option trade your profit and loss is fixed and can only turn out one of two ways. You can only win a certain amount or you can only lose a certain amount. This differs from financial spread betting wins and losses can be theoretically unlimited. If you do not set stop losses points to take profit with spread betting then you can win or lose based on the magnitude of price movement. You can learn more about them here . Actually, most of the content on this site is related to trading binaries in some form or fashion.
Making a comparison between Forex trading and binary trading is not easy as they both have their own advantages over the other but here are some of the main differences:
To make money in binary options in the long run, you must win the majority of the bets. Since forex trading allows users to set their own profit targets vs. stop loss orders, traders can still make a profit even if they do not win the majority of their trades.