Binary Options Trades - Rapid Fire - How Much Is Too Much
Author: Steve Wise
There are a few forms of binary option trading but each trade always boils down to whether the contract is in the money or not. The market for binary option trading is extremely fast paced - aspirations are dated in minutes and hours and not days or weeks. A good day trader in the binaries market will make extremely high yields - and quickly.
High Yield - High Risk Investing - All in a Days Work for a Binary Option Trader
Typical yields on a binary option contract fall anywhere from 60-81% depending on the particular issue and broker. As you might expect, given the rapid/hourly turnover computing a compounded return is essentially impossible. Consider this elementary payout example.
We'll first examine a contract that expires favorably. If you invested $200 in a put contract that paid 75% return expired in the money what would the cash payout be? The payout on your $200 position would be $350, including your initial investment of $200 plus $150 in profit.
What Happens When Things Go Wrong
But what about a binary option scenario which expires unfavorably? Much will hang on what type of contracts your broker writes. Most of the time contracts are held to maturity, but some brokers allow investors to sell unfavorable positions (at a substantial loss). 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.About the Author:
Traders with capital and are prevented from getting access to plain vanilla options instead use the low micro capital binary options market instead.
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