Binary option trading varies from broker to broker but the basic concept is the same: each trade has only one of two possible outcomes. The market for binary option trading is extremely fast paced – as expirations are dated in minutes and hours and not days or weeks. Day traders who learn to land in the money trading binary options make very good money indeed.
Binary Option Trading – It’s the High Yield Stupid
On any given day a binary option trader can expect to earn somewhere on the order of 70% or so yield per contract. It is literally impossible to compute the compounding rates of return on some of these investments because the yields are so high. Here’s a basic payoff one might see on any given day on a binary option contract.We’ll first examine a contract that expires favorably. What would a two hundred dollar investment in seventy five percent yielding call options payout? The payout on your $200 position would be $350, including your initial investment of $200 plus $150 in profit.
What would happen though if the position expired out of the money? This will depend on your broker. While some brokers allow trading of binary options in a secondary market – unloading unwanted positions, others are hold to maturity only. Brokers that require holding to maturity do sometimes have a fixed payout on out of the money contracts – saving the hassle of trying to squeeze blood from a stone. In some cases there is no payout and the trader is stuck with what they’ve got. Any way you look at it, unfavorable trades are hard to salvage.