Binary means two values. In finance a Binary Option (contract) is an option where the buyer/owner will pay a fixed amount for an underlying service or asset. The payoff is either a fixed amount or nothing at all. This type of trade is also known as All-Or-Nothing. Binary Options trading is fairly new in the world of day trading.
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Scalping is a commonly used technique. It simply means that traders hold positions for a very limited time. Most day traders exit positions before the market closes in order to avoid unmanageable risks. Price gaps can occur between one day’s close and the next day’s opening.
Commonly used terminology in day trading includes “margin trading.” This basically means that they “borrow” money to trade. This can lead to huge profits, but also major losses. Buying on margin is very common. The interest rate is based on a broker’s call.
Originally when stocks were traded a trader would contact a stockbroker who in turn relayed the order to a specialist on the floor. The specialist then got hold of whoever was interested in the order, process it and write the tickets. This effectively transferred the stock. Brokerage commissions were set at 1% However, in 1975 it changed. This allowed brokerages to charge commission fees of their own. The lower commission fees lead to much better and more competition. It was also one of the first moves to allow the start of day trading. Electronic ownership transfer was the last step that made today’s online day trading possible.
A very important necessity for day traders is market data. Real data feeds are available. These come at a very low cost. Usually brokers require traders to make a certain volume of trades each day in order to cover the costs of these data feeds. The requirements aren’t high. Even a moderately active day trader can expect to meet the requirements. By meeting these requirements the data feeds essentially becomes free. More advanced data feeds are also bought some of the more experienced traders.Some day traders also buy complicated analysis and charting software. These systems vary in price, from a few cents to hundreds of dollars per month.
The potential profit of a binary option is known before the purchase is made. These options can be bought on either an “Up” or “Down” call. This means that an investor can go long or short on any financial product simply by buying a binary option. Binary options are offered against a fixed expiry time which may be e.g. 30 seconds and up to 30 minutes, an hour ahead or to the close of the trading day. There is no need to spend vast amounts of cash to get into this type of trading. Depending on the call a trader has made, he can profit from the up or down movement of the underlying asset.
A binary option automatically exercises, meaning the option holder does not have the choice to buy or sell the underlying asset.
Binary Options trading carries a risk of capital loss.