About Binary Options

Since I have a MBA, I am supposed to know stuff about finance. At one point in my life I traded stock. I had an actual portfolio. I did pretty well in my time. I was earning about 21% return after the brokerage fees. Of course, this was in the days before online brokerages were available. I needed to walk into a brokerage firm to trade stocks. I was able to buy and sell options by making a phone call. And the brokerage fee was relatively huge by today’s standards.

Now we can trade Binary OPTIONSs. These only became acceptable in 2007 when the SEC approved changes to the trading mechanism. For those of you that do not know, since most people do not, binary options are also called digital options or all-or-nothing options. In this connotation, binary is referring to the on and off nature of the option. Basically, if the option hits the contracted price, you get money. If not, you lose your money. Binary options tend to be high risk and high return.

Binary options are different than traditional stock options. With traditional options, you sell or buy the right to purchase a stock at a certain price. If the stock does not hit that point then there is no sale and the seller makes money. If the stock hits that price point then there is a sale and the buyer makes money by selling it at a higher price than it was purchased. For example, if I purchase the option to buy a stock at $10 per share and the stock goes up to $20, the seller still needs to sell me the stock at $10.

Binary options are similar except that the all-or-nothing aspect makes it a bit riskier. Of course, in finance, higher risk means that when you hit it will give you a higher return.

Leave a Reply

Your email address will not be published. Required fields are marked *