Binary Options Defined
The basics of any market is that someone has something you need, and you have something someone else wants. On the commodities exchange, a big fast food company may purchase cattle to make hamburgers. They have no use for cow hide, so they sell it to a big-time leather recliner manufacturer. The issue is that the prices of commodities fluctuate in accordance with inflation, fuel prices, and other unpredictable factors.
This highlights something used often, especially in metals and commodities — contracts and derivatives. Options are the contracts between two parties. One party “offers” (sells) and the other party buys the asset. It could be in the form of shares, currencies, commodities, or stocks. The contract covers a time period that is established before the contract begins.
The buyer may exercise the option prior to expiration. The key detail is that they can, but they are not required to do so before contract expiration. The buyer pays a fee for the options valued at proportion of the asset’s potential value in the future.
The idea behind the contract and make an educated guess whether an asset will increase or decrease in value when the expiry occurs. If you guess correctly, you make money. If not, you lose your initial investment.
The reason that binary options is attractive is that it contains a calculated risk. You know ahead of time what you may lose or make if you are right. It is not subject to the same erratic volatility of the underlying assets either. Seasoned Forex traders will hedge in the binary options market to make money.
Common Options Terms
Strike Price – The price the underlying asset is upon agreement of the option.
When a Call Option expires above the strike price, it is a money maker, or in the money. When they expire below the strike price it is “out of the money”.
When a Put Option expires above the strike price it is “out of the money”, or in the money when it expires below the strike price.
The Underlying Asset refers to what is being optioned. Is it a particular stock, stock index, commodity, or a currency pair?
Expiration is the time/date when the option expires. At that time the buyer cannot exercise the option any longer.
For affiliates, risk is limited, and that means it is useful to jump into binary options. Traders realize quickly that binary options trading is a huge money-making opportunity for them. It is even a great way to get their experience before going into more complex and risky Forex trading.
For affiliate marketers, it all comes down to focusing on the simplicity of options. It can only go up or down and the amount that will be won or lost is defined before the contract begins. This is a great all-around money-making opportunity.