Digital options brokers

Posted February 15th, 2012 by LuckyMe

One new product that has recently hit the online gaming scene is binary options.

This may sound like a complex type of product for the retail buyer, but it is much more simple than it sounds. In fact as far as decision making is concerned, these products are simpler than regular financial products indeed. But first let us explain what these so-called binary options (also called digital options) are.

Let us say the price of gold is $1700 and you believe that next month the price will be above $1750. Previously there was not much you could do to make a trade representing this view with a limited potential loss. Buying gold itself meant that you could lose a lot if the price dropped, so this is a risky trade and the risk reward is not favorable. But with a binary option you can take this exact bet that the price will be over $1750.

In fact you can buy a digital option that will give you a profit if the price of gold effectively closes above $1750 next month. If it does not, than you lose the value of the option as you were wrong with the bet. Alternatively some binary option brokers will pay you a minimum amount if you are wrong, such as 15% of the bet.

There are a number of advantages of these novel financial products.

For one thing there are only two possible outcomes, either right or wrong. So you do no need to worry about selling or keeping your position, it will expire automatically. On the other hand if you buy an asset the tough question is always when to sell it. If the trade is profitable it might be easier to sell, but in case of a loss it can be hard to sell and to admit being wrong. Loss aversion is a well know psychological phenomenon affecting traders, but binary options avoid this issue.

Nowadays everyone can easily trade binary options on the Internet. It is simple to open an account and to make a deposit, and these platforms offer tons of tutorials and education material so that you learn the ropes before jumping into the water.

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