Trading Binary Stock Index Options

Trading Binary Stock Index Options

By www.Options-Trading-Education.com

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Trading binary stock index options is often
characterized as a quick and easy way to profit
from the stock market.


Those who promote this means of trading stock
options remind us that in trading binary stock
index options risk is limited to the price paid for
the options contract.


This, of course, is the case in all options
trading.

In trading binary stock index options the trader
pays for his contract and typically enjoys a fixed
return on his investment if the trade goes as
expected.


Advertising for companies that offer trading in
binary options often refer to binary options as
the most rapidly growing part of the options
market.


The question that the options trader needs to
ask is if trading binary options on stock indexes
is a profitable way to trade options.


Cash or Nothing vs. Asset or Nothing
Binary Options


Binary options trading gets its name from the
fact that there are generally two possible
outcomes to a trade, payment of something or
nothing.


Although widely traded in the US options
market, these options are typically European
style in that the issue is settled at the end of the
contract period and not before.


Also, there are two types of payoffs in binary
options trading.

In one the trader receives a set amount of
money if the call option finishes in the money.


In the other he receives the amount of the equity.

The second case is similar to regular options
trading in that the trader can benefit to the
extent that the index advances.

In the first case his profits are limited by the
nature of the contract.


Looks Easy but Be Careful


Trading binary stock index options is often
presented as being easy when compared to
other kinds of options trading.


If profits are not your motive the process can be
very easy! Set up a trading account and
purchase the appropriate hardware and
software to make trades online.


When all of this is in place, just pick an index to
trade, decide whether you think that the index
will move up or down, choose how much you
want to “wager” and click the “buy” button. Is
this fast and easy?


Maybe yes, maybe no.

Depending upon the degree of sophistication
required computer trade stations and trading
software can be reasonable in price or very
expensive.


Make sure that whatever software you purchase
that it is compatible with the online broker
through whom you trade.


Remember that when you put money into a
trading account it should be money that you
can afford to lose.


Now we are to the point of the so called easy
steps to trading binary stock index options.


Choosing Which Index to Trade


It is absolutely basic and essential to
investing or trading equities is to know what
you are trading and why.


This is not a quick and easy matter.

Options traders spend a large amount of their
time deciding on this issue.


Deciding Whether the Index Is
Likely to Rise or Fall


Options traders use the same methods of
fundamental and technical analysis as stock
investors and traders in order to improve their
chances of making an accurate and profitable
trade.


Succeeding in options trading requires a
disciplined approach.

The reason that many traders stick to American
style, standard, options trading is that they can
exit a trade at any point between purchase and
contract expiration.


Often times there is more profit to be made at
the moment than when a contract expires.

Traders can also exit in order to limit their
losses.


Fine tuning one’s ability to buy and sell at the
ideal time can be a lifetime pursuit and only
looks easy when one is watching a pro.


Money Management


In trading binary stock options as in all options
trading, risk management in option trading is
essential.


Options trading is not and should never be a trip
to the casino.

How much to trade and how many trades to
enter into at a given time requires experience.

Start small and go slow and never “bet” when
trading binary stock index options.


For more insights and useful information
regarding options and options trading, visit

Trading Binary Stock Index Options

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