Definition of Binary Option Trading

A Binary Trading Option a kind of derivative option where a trader makes money or maybe losing money on the price fluctuations of an underlying asset in future for a fixed amount. Binary options depend on the results of a “yes or no” or 0 or 1, hence the name is “binary”.
Binary options have an expiry date and time with every trade. At the time of expiry, the stock price of the underlying asset defines the profits or loss in the trade if the stock price is “in the money” then the trader makes a profit and if the strike price is “out of money” then the trader makes a loss in the trading.

How to trade in the Stock Market using Binary Option?

The buyer options trader buys a call when there is a bullish market on stock, commodity, index, currency or sells a put when there is a bearish market. For a call buyer, the buyer must make profits when the call price hikes above the stock price on the expiry date and time. For a put seller, the seller must make profits from trade if the put price went below the stock price on the expiration date and time.

The stock price, expiry date, the payout and the risk that is combining with the trading are mentions by the broker at the start of the first trade. If the trader believes the stock price will go up then the trader will surely bet on the buy trade and when the trader believes that the price will go down then he will bet on the sell trade. According to the trader assumption, the bet in which he made the trade is correct then he will make a profit otherwise he will lose the capital.

What is the procedure to trade in Binary Option in India

Indian traders who are willing to invest in binary options need to search a foreign broker for this trading, as it is illegal in India to trade in binary options trading and there are no stocks listed for this type of trading. Here is the procedure to do trading in binary options:

I.          Open an account with a foreign binary options broker.

II.        Select the asset class you want to trade with.

III.       Make assumptions with context to the trade.

IV.       Choose the capital you want to trade within binary option

V.        Trade for the option

VI.       The results will be either a direct return on investment or no investment at all.

As per the guidelines of the Reserve Bank of India, binary trading or any kind of trading that is base on the foreign exchange is prohibited in India. The financial sector in India is regulated by the RBI and the Securities Exchange Board of India (SEBI), which do not give the right to trade binary options trading.

Options Types for Binary Trading

1. Range or Boundary

 In this trading type, the option allows selecting a range or boundary in which the stock price should range at the time of expiration.

2. Up/Down

This is the most common type of trading in which the trader should assume and then make the decision of buying a call or selling a put while deciding whether the stock price will go up or down.

3. Touch/No touch

 In this type, the trading instrument should touch the stock price before the expiry to make a profit and if doesn’t touch the stock price before the expiry date then it makes a loss of capital.

4. Ladder  

This type of option is the same as the up/down trades. In this, there are predetermined levels of prices that will shoot up or down and not on the current price. There are partial profits in this trade once the price of the underlying asset reaches the pre-determined level before the expiry date.

Difference between Binary Options and Traditional Options

Binary Options Traditional Options
The Trader do not have right to buy or sell the underlying asset In traditional option, the trader of the option has the right but no obligation to buy or sell the underlying asset.
Trader of any option has no right to exercise the asset before the expiration date and he needs to wait till expiry. The Trader has the right to exercise the underlying asset before the expiration asset depends on the type of option.
This type of option is not regulated by most of the exchanges across the world. This option can be regulated by specific countries derivative trade exchanges across the world.
The Trader can get the payout that is fixed or it’s the market value of the underlying asset. The Trader cannot get the fixed payout in this option because there is difference between the buy and sell prices, if not exercised.

Advantages of Binary Options are

  1. Binary Trading Options contracts are of the different time frame and are mostly of short term.
  2. Traders have a broad range to select from seconds to months depending on their necessity.
  3. In this option, there is no actual buying or selling of stocks or commodities rather than that they just speculate the stocks.
  4. Binary trading is useful for intraday speculative trading and hedging of physical trades for short time.

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Trading Fuel presents different and varieties of blogs that are useful for the beginner and the expert level. Binary Option Trading are illegal in India as well as in major of the countries across the world. In this blog, you read about the deep concept about what are binary options trading, Advantages, How to trade and many more. If in case, you didn’t get any concepts in this blog you can ask your query via emails and we will be glad to resolve your doubts. Read more topics on Trading Fuel to get many learning and interesting facts.

Author

Prashant Raut is a successful professional stock market trader. He is an expert in understanding and analyzing technical charts. With his 8 years of experience and expertise, he delivers webinars on stock market concepts. He also bags the ‘Golden Book of World Record’ for having the highest number of people attending his webinar on share trading.