Binary option, pronounced bi-na-ry-option, refers to a type of financial contract. There is an agreement between the contract buyer, the trader, and the contract seller, the broker. The seller allows the buyer to predict the price of the asset that the seller determines in the future will increase or decrease at the time of the contract , with a clear term of the contract.
when the contract expires If the buyer predicts the direction of the asset price correctly. The buyer will receive a return for the amount specified by the seller. (Most often set out as %), but if the buyer predicts the wrong price. As a result, the buyer will forfeit all the money.
For example …
Broker A opens a Binary option contract BTC/USD, the current price is 30,000 USD, promising a 90% return. Above or Below 30,000 USD
Case 1 , the buyer (trader) predicts that the BTC/USD price is higher by placing a security deposit of 1000 USD, and it turns out that after 15 minutes, the BTC price changes to 32,000 USD , which is actually higher. The result is a buyer. Profit as follows
1000 USD Deposit x 90% = 900 USD + 1000 USD Deposit = $1,900 Total Refund
Case 2 The buyer (trader) predicts that the BTC/USD price is higher by placing a security deposit of 1000 USD and it turns out that after 15 minutes the BTC price changes to 28,000 USD , which is lower. As a result, the buyer is forfeited. Total security deposit of 1000 USD!
Therefore, from the above meaning we can conclude The key features of binary options contracts are as follows:
Features of binary options
1. It is a contract between a broker and a trader.
The first understanding that must be made right is that binary options contracts are contracts only between two parties. It is a broker that sells binary options contracts and the buyer of the contract is the trader. Therefore, it is not the case of selling contracts to the central market at all.
2. The contract has a clear expiration date.
In the contract, the expiration date is clearly stated, such as 1 minute, 5 minutes or 1 day, etc. The broker who determines the scope of the contract expiration date is the broker. It allows buyers to choose a time frame they are confident in.
3. High yield
The third feature is that binary options contracts are contracts with very high financial returns, usually 40-110% return per contract. Thus, it may be able to generate great income for traders who intend to trade in this market.
4. Highest Risk
Binary options contracts carry the highest risk, because if you predict the direction of the price wrongly. that means You will immediately lose all the security deposits you have in this market. For example, if you deposit $1000 you will lose all $1,000 instantly, but some brokers may offer some cashback to reduce your financial risk.
5. Easy to play
Of course, this is a very important feature of binary options: it’s easy to play, you just predict the direction, over or under the price as you open the binary option contract, when the contract timer expires and you guessed right. You get paid immediately.
Binary options and CFDs
When you buy a financial contract Some contracts may be CFDs and others may be binary options. These two financial contracts are completely different. The different characteristics of the contract can be divided as follows:
| CFD | Binary options |
|---|---|
| is a contract between Broker vs. Trader | is a contract between Broker vs. Trader |
| no expiration time | Set a clear expiration time |
| Controlling the loss of the security deposit | Can’t control the loss of insurance money |
| Return based on leverage | , clear return 40% – 110% of the security deposit. |
| lower risk | highest risk |
| harder to get money | very easy money |
| Thai law does not approve | Thai law and some countries do not recognize it. |
| more difficult to learn | easier to learn |
| Indicators are very profitable, | Money Management is more profitable. |
| There are many coaches | There are many coaches |
| Scam brokers are more difficult. | Brokers are easier to scam. |
