How To Use Binary Options To Profit From A Declining Market
Binary options trading method is a type of investment in predicting the current development of various assets such as the euro, gold, copper, etc. Although this is similar to other forms of investment, such as stocks and Forex trading, it carries less risk as the maximum gain and loss are known ex-ante. A binary option indeed yields a fixed gain to the buyer of the option if the price of the underlying asset is at a level higher than the exercise price for a call.
It is also possible to bet on the fall in the price of an asset in the same way, by buying what is called a put. In this case, a binary option will yield a gain if the price of the underlying asset is below the strike price. In times of crisis, the possibility of betting on the downside while limiting your loss in the event of a rise in the markets can represent an attractive investment opportunity by being able to offer portfolio diversification.
Let’s take an example with the Apple company, you know that in a few days, a new iPhone will be marketed, and you then think that on this occasion, the Apple share price will increase. You can then buy an Apple binary option, and if the Apple share price on a given future date is higher than the strike price, then you will pocket a certain amount, also predefined. Even if the price is a penny above the strike price, you will still earn as much money as if the stock rose 10%. On the other hand, if your intuition turns out to be bad, your losses are limited to the price of the option.
Before you get started, it’s important to learn the essential basics of binary options trading and, of course, trade with legitimate and regulated binary options brokers.