Functionality is the biggest difference between binary and regular or traditional options. Back when binary options first were introduced into the trading market they were known as exotic options due to a more complex trade and that they were used as a privet against risk.
Today Binary Options are not used as a hedge; they are now seen as a practical investment tool rather than traditional options being more accessible to small or average investors.
Usually, offers are the said options used to purchase an asset at a later date for instance a month from the time of purchase up to a year, but many options are still utilized this way.
A good example would be to look at an employment contract. These contracts may offer company stocks at a certain price. If the said stock is worth more than the option price, then the employer will exercise its option to purchase the stock at a discount price, but if the stock isn’t worth purchasing at the option price then no exercise would be the best option.
The public has access to traditional options. The principal is still the same with deciding whether to exercise the option or not when it comes due. Buying the fundamental asset is what it means in terms of exercising the option for example buying dollars in a month is one of these options. You make the decision in the one month’s time whether to exercise the option or not. However, commissions of fees that you pay when buying the option when you decide to exercise it or not profits from the exchange.
It is very important in terms of how much the asset has increased in value when it comes to determining whether it will be substantial to exercise the option. For the investor to realize a profit, the asset’s move must be more than the premium so that if the asset accrues minimum value it will be worthwhile to exercise the option and the investor will be able to enjoy the minimal as well.
Traditional options as stated above, all assets gain in its value meaning profit for the investor. A successful binary trade will create a profit between 60-81% sometimes more. The asset only needs to finish “in the money” for the investor to receive a full percentage payout of the trade.
The three basic binary options are as follows:
High/Low- To earn full payout the asset must finish higher/lower than the actual price.
Range- The fundamental asset only needs to finish within an elected range to earn its full payout.
Touch/No-Touch- To gain a full payout the asset needs to touch a fixed price once or none at all.
It’s clear that when using binary options that you buy the chance to profit from the asset and not purchase the chance to buy the actual asset at a later date. Depending on the move during the option period will determine the outcome of the profit.
Small profits have been foreseen in traditional options, but with binary options all profits and losses are fixed thus the trends of the value of the asset whether it be short or long term in which they can reap larger profits for the trader that uses binary options.
Binary options are traded in monthly increments just like traditional options. However, the more common options are traded in increments of lesser time value.
In today’s world both binary options and traditional options play an important part when it comes to the trading mechanisms. Many commodities that we purchase on a day to day basis are often determined by traditional options such as food, electricity and other necessities. The average or small investor who takes the time to research binary options can make a more conversant trade with little to no risk.