Trading Example

The binary options market is an extremely fast paced environment. Here, traders must learn to make decisions quickly based on analysis of whether they feel that the price of an option’s underlying asset will rise or fall during the time period in which they hold an option contract.

Many of today’s online binary options trading platforms offer tutorials and other educational opportunities that can assist both new and experienced traders in learning the overall market, as well as the tools that are available to help them profit in this market.

One such tool may include the use of a demo account where the trader can place actual trades using real assets in real time, yet without putting any of the trader’s own funds at risk. These accounts can help traders to become more comfortable trading in the market when the time comes to place trades with real money. Yet, prior to even using a demo account, it is oftentimes helpful to study binary options trading examples.

Prof. Binary’s Trading Tip:

If you’re still not familiar with these terms and are not sure what options there are and how to trade with them you should take a look at our terms and explanations article. There you’ll find everything you need to know to understand everything in this article.

How Binary Options Trading Works

With binary options trading, traders typically work within an atmosphere of predetermined risk and/or reward. This means that the trader will receive either a fixed amount of return in terms of profit, or they will receive nothing at all should their option transaction expire out-of-the-money.

The two key variables that a binary options trader should focus on include the direction of the underlying asset’s price and the timing of when his or her option contract will expire. Unlike trading in regular options, the returns on binary options are a fixed amount. Because these returns are already known by the trader prior to entering their binary option trade, there is no need to be concerned with exiting quickly in order to receive profit or eliminate loss when the option’s value reaches a certain amount.

Walking Through a Binary Options Trading Transaction

Using an example of a high/low binary options trade – which is considered to be a standard binary option contract – along with a currency pair of the Euro and the U.S. dollar, or EUR/USD, as the underlying asset, here is how a trader might proceed.

  • Open the Trade – In order to initially open the trade, the trader will simply find the underlying asset that they desire on the binary option trading platform.
  • Choose the Direction – In choosing the direction, the trader will pick whether the underlying asset’s price will rise or fall during the time of the option contract.
  • Choose the Options Expiry – In determining the expiry, the trader will choose when the option contract will expire.
  • Enter the Amount to Invest – Most online binary options trading platforms will require traders to invest a certain minimum amount on trades. Here, the trader will decide upon the amount that they wish to invest and then press the “Buy” button.

Once all of these factors have been chosen, the trader is given a chance to cancel or change their trade if they so desire. Should the trader wish to continue, they should click on the “Approve” button.
As the option moves closer to its expiry time, it will be either in-the-money (a profitable position for the trader) or out-of-the-money (a losing position for the trader). Should the option expire in-the-money, the trader will earn a fixed amount of return.

Where to Find Additional Assistance

Most of the binary options trading platforms offer customer service representatives who are well-versed in this type of trading. Therefore, should a trader have a question or need assistance in placing a trade, these representatives can walk the trader through the procedure. This can help to ensure that the trader has included all of the necessary tasks in placing his or her trade.