What is a binary option?
The binary option is a means of trading that is based on the rise (call) or fall (put) of a product’s price such as a stock or currency over a specified period.
It is called binary because only two outcomes are possible:
- or the option ends favourably “in the money” and you receive the fixed amount that depends on the initial investment,
- or the option ends unfavourably and you lose your entire investment.
Today, any investor can access binary options. Previously, it was necessary to go through a broker.
However, this is more for experienced investors since beginners could lose a lot of money.
There are different types of options:
- The binary option high/low or cash or nothing
This is the most common binary option. You choose a maturity date and focus on an increase or decrease in assets. If, at the end of your term, your assumption is correct, you win the gain set when you place the order. Otherwise, you lose your bet.
- The one-touch binary option
You always set a deadline and you bet that the price of the asset will reach a fixed level. You win the gain if the asset price reaches this level before the end of the term.
Otherwise, you lose the bet.
- The binary option no touch
Same principle as the one-touch binary option except that you bet that the asset will not reach the set level until the end of the term. You win the gain if the price of the asset does not reach the level. You lose your bet if you do not.
- The zone or boundary option
For this “zone” or “out of zone”, also called “boundary”, you bet on the fact that the asset will close in a predefined zone.
Binary options are risky and be careful with scams
Binary options are doubly risky because:
- you can lose your entire investment in a short time. If you are not familiar with this technique, it is still very difficult to win. This is a poker move where you will lose more often than you win.
- brokers are not necessarily and can be scammers. The Autorité des Marchés Financiers tries to control this market by raising investors’ awareness of the need to invest in a broker with offices in France, regulated by a European Union country and authorised to carry on its financial activity by the Autorité des marchés financiers and the Banque de France.
So if you want to invest in the binary option, check that your broker is not on the list of unauthorized sites offering binary options.
In summary, what to do to negotiate a binary option:
- Find a trusted broker who is not on the list of sites not authorized by the Autorité des Marchés Financiers
- Open an account on his website
- Select the asset you wish to bet on
- Choose the time frame, your deadline which can range from 20 minutes to one month
- Select whether you bet on the call or pull of the asset
- Choose the amount you want to invest
- Validate to buy your binary option
- Check to see if you have a gain or loss at the end of your term.
Good to know – Taxation on your earnings from binary options
In France and for individuals, your earnings are subject to income tax, to which are added 15.5% social security contributions