Real binary options
Binary options trading is very popular these days. Let's find out what this financial instrument is.
Options are a class of derivative financial instruments. The term 'derivative' means that the payout on such a contract depends on the price of some underlying asset.
This type of contract gives the buyer of an option the right to buy or sell an asset at a predetermined price during a predetermined period or at a predetermined time. However, this contract does not oblige the buyer of an option to buy or sell. At the same time, the issuer of this option is obliged to buy or sell the asset in accordance with the terms of the sold option.
You can choose any asset for an option contract. You can open an option on currencies, stocks or commodities.
In this short review, we look at what real options are, how to invest in real binary options in Malaysia and what online binary options trading is all about.
Real binary options
Before the creation of the Chicago Board Options Exchange (CBOE), that is, before the standardisation of option contracts and the invention of the Black-Scholes option pricing model, options were traded with low volumes. Volumes were small because information about options trading was inaccessible and rather complicated.
Every trade was conducted by telephone, which made the process of trading very difficult.
With the opening of the Chicago Board of Trade in 1973, which still remains one of the major options exchanges in the world, any individual or company could trade call options on shares. The exchange then launched standardised option contracts on 16 shares of US companies, each on a different stock. Over time, the number of listed option contracts increased, and with it the number of exchange members. Thus, at the CBOE, after the doubling of listed options contracts, the number of members also doubled, reaching almost 600 members in 1974. US legislators also promoted options trading, allowing banks and insurance companies to include options in their portfolios and investment strategies. By early 1975, daily turnover already exceeded several hundred options contracts. In 2010, CBOE was transformed into Cboe Global Markets Corporation, which was listed on NASDAQ in its IPO.
Options transactions can now be done via a special communications system. Options on stock indices are particularly popular. The most common option contract is the S&P 100 index. There are also options on sector indices, options on foreign stock indices and options on interest rates. The total number of index options is around 40.
Real options are traded on regulated exchanges and require a substantial investment of capital and the proper paperwork to buy or sell an option. Today's online investment marketplace has simplified this task by allowing you to trade binary options on online trading platforms. Technically, binary options trading is now available to anyone with an internet connection. Signing up for a trading platform takes a few minutes and the initial investment starts at a few dollars.
Binary options, which we trade online through trading platforms, are different from real options, as we are not buying the real underlying asset, but only having the possibility to speculate on changes in its price. So, when trading binary options, our main objective is to correctly predict the price movement of the underlying asset.
Trading binary options online in Malaysia
Why are binary options so popular with modern traders? Because this type of online trading allows you to earn a very good amount of capital quite quickly. Some online trading platforms offer up to 90% profit on a trade.
At the same time you can see a lot of bad reviews about online binary trading. There is even an opinion that online binary options trading is a scam and fraud by brokerage companies. Why is it so? Let's get to the bottom of it.
By definition, a binary option is a trade that either generates a fixed income or nothing. It all depends on whether your prediction is correct or not. That's why they call binary options "all or nothing". In other words, you either get the promised profit of 75-80-90% or you lose the whole amount you invested in the trade.
With the advent of online trading options have become available to anyone who has access to the Internet and a minimum initial amount to invest.On the one hand, this opportunity has opened the door to the world of investing for many, and that's great. But on the other hand, many beginning traders have the mistaken belief that trading binary options is very easy and that predicting the price of an asset is just a matter of guesswork, on luck. You have to remember that trading is not a game of chance and an option contract is not a casino bet.
Investing is a whole science of the laws of the stock market. And the price of the asset should not be guessed, but exactly predicted. Investment forecasting is based on complex analysis, either fundamental or technical. In addition, there are many useful tools for trading, the use of which will help secure your deals considerably, as well as make your trading as comfortable as possible.
So if you are a novice trader, you should start by studying the subject. Investing at random is not likely to bring you good results. And because binary trading is all-or-nothing, the result of a bad trade will be the loss of the entire amount invested. That's why you often see negative comments about this type of trading. The desire of many potential traders to make lightning-fast profits without any trading experience or understanding of how it works leads to losses and the mistaken belief that the broker is fraudulent.
In fact, binary options trading is a very good way to make a decent profit. Where do you start? First, find a reliable online binary options broker that offers acceptable and transparent trading conditions. Second, learn more about this unique financial tool.
Below we will take you step by step through how it works.
Choosing a binary options broker. Binary options trading platform
All transactions in the online investment market are done on the online trading platform provided by the brokerage company for its operation. Therefore, to start trading binary options in Malaysia, first research the brokerage market in the country and choose a reliable broker. To do so, gather and analyze information about the available brokerage firms. Your broker in the online investment market should be licensed and have good reviews from experienced traders. Among the brokers that meet these criteria, choose the one that offers the most user-friendly trading platform for you personally.
When choosing a binary options trading platform you should consider the following aspects:
- how comfortable you feel with the platform. You'll want to check out the interface, the availability and layout of the major options, the quality of the graphics and the ability to make your own personal adjustments;
- the market situation and make the right investments for proper performance. A quality trading platform must provide complete and accurate information about the quotes, as well as have the necessary trading features;
- acceptable commissions and transaction limits. Each trading platform sets its own minimum deposit, investment and withdrawal amounts and fees for particular transactions. You should choose a platform according to your financial situation and take this information into consideration;
- have a feedback chat room for current issues. Quality platforms offer active communication 24 hours a day.
In addition, good trading platforms have an educational section with videos on investing, a blog, a chat room for comments, a news feed, an economic calendar and a free demo account so that you can test all these benefits.
The Malaysian binary options market offers a good selection of binary options brokers, so you can easily choose a quality trading platform.
Once you have chosen one of the platforms, sign up and open a demo account. Read below how to do it.
How to register on the trading platform?
Registration is standard on most trading platforms. To register, follow the simple steps below:
- visit the official website of your chosen broker;
- locate and activate the "register" option;
- fill in the registration form;
- confirm your registration via e-mail or mobile phone: depending on your registration details you will receive a confirmation link by e-mail or an activation code in a text message.
After these simple steps your account is ready for use.
Test the platform's work
Most reputable trading platforms offer the opportunity to open a demo account to practice trading for free. Be sure to take advantage of this opportunity. You will be able to try out different trades, different trading methods and different approaches, and thus develop your own trading strategy. To do so, your demo account will automatically be credited with a certain amount of play money, which you can spend on these learning activities. In other words, you will not risk any real money during the learning and experience phase.
Of course, such operations will save you from unnecessary risks, but they will not bring you any profit either. To really start trading, you need to activate a real account.
Real account activation
A real account, like a demo account, is automatically opened when you log in to the platform. Activating this account is simple: all you have to do is deposit an amount that is at least as real as the one approved on the platform. Now you can start trading with just a few dollars, as most platforms have very low minimum deposit limits.
Funding your account is easy. To do so, activate the "deposit" option and choose the one that suits you personally from the list of available deposit options. Usually it is a deposit via bank payment card or online payment systems.
The money is credited to your account instantly, and you can start trading immediately.
Classification of binary options
Almost any underlying asset can be selected for the deal, so an option can be an option on shares, currencies, commodities, indices or futures. Options also differ in terms of the length of the transaction. There are the normal, classic options, which last from 5 minutes to 24 hours, and the turbo options, which last from 30 seconds to 5 minutes.
There are American, European and Asian style options.
In the American style, the option can be exercised by the holder on any day before expiry. That is, if you manage to bail out before a certain day, the option is called American style.
European style: this is an option contract that can only be exercised at maturity. That is, if the terms of the contract can be fulfilled on a certain fixed day, which is specified in the contract, then this option is considered European style.
An Asian option is an option that is exercised at the weighted average price during the option's life.
Stock options are most often American options and OTC options are European and Asian options.
Options are divided into put and call options. Call options involve buying and entitle the holder to purchase an asset at a specified price in the future. Put options give the right to sell a specified asset at a specified price.
There is also a distinction between long-term and exotic options. Long-term options are open for more than one year. Exotic options are non-standard options whose characteristics and descriptions can differ considerably from standard options. Exotic options fall into two basic types:
- options that depend on movements in the underlying price during the life of the contract itself;
- and options that are multi-options, which have several underlying assets and a price for each of them.
Binary options trading
As mentioned above, the essence of binary trading is to correctly predict the price behaviour of the underlying asset.
A call option is a contract to buy an asset before a certain date in the future at the current price and quantity. A put option is a contract to sell an asset on a specific date in the future at the current price and quantity.
That is, if you bought a futures or a stock and the price of the asset went down, having a put option (right to sell), you can cancel the available cheaper asset at the price specified in the option, called the "strike price". Similarly, if you have a short position on an asset and you have a call option, you can close out the position at the strike price if the price of the sold asset changes negatively.
So, to trade binary options you have to choose the underlying asset, the expiry time and the option type, put or call.
You can also make money on increased volatility. Options can be bought not only individually, but also in a complex way, forming an options portfolio, which allows you to earn options in a more non-linear way. So, for example, if call options and put options are bought at the same time with the same strike, profit can be made at any movement of the underlying, whether in case of rising or falling prices, by an amount exceeding the purchase price of both options.
The objective of binary options trading is to decide whether the price of the asset will rise or fall by the time the contract expires. If the price is expected to be higher than the current price, the buy option is selected. If it is lower, then the offer option is chosen. Next you need to figure out how to analyse the market, what factors to consider when predicting price movement, etc. Aside from the simple call and put options, some trading programs offer more complicated options, for example you will only win if the price touches or fails to touch a certain point. These are called binary options Touch and No Touch. In a No Touch binary trade, you will only profit if the price touches a certain level. While trading one touch requires the price of the asset to reach a certain level, no touch implies the opposite. You will only make a profit if price does not reach the level shown on the chart at any time prior to expiration. Profits depend on the distance from the target price. The further away you are, the lower the payout percentage.
What does the success of online deals depend on?
Experienced traders use various technical analysis indicators as well as fundamental analysis to correctly predict the price behaviour of the underlying asset. However, even traders with an excellent track record and positive experience in trading binary options make mistakes.
Trading binary options is an activity, which can allow you to make good profits, but also involves certain risks. The above information gives you a fairly general idea of this financial instrument and is intended to show you just how many classes and types of options there are, and how to trade them.
So we hope that they will come to the right conclusions, namely:
- Trading binary options can really be very profitable;
- Trading binary options is not a game of chance; it is an activity that requires study and experience.
Learn about binary trading by watching the trading platform video tutorials. Put this knowledge into practice by opening a free demo account. Make your trades a success!