WHAT IS THE DIFFERENCE BETWEEN STANDARD OPTIONS AND BINARY OPTIONS

By: Roman Horvath
May 30 2015
204

Both are options, but there are quite a few differences between standard options and binary options, including with respect to the duration, the disbursement, the investment required and the options during the term of the option. Let us to get a clearer picture of the two types of options first look briefly at what is a standard option and a binary option. Go to this page to trade directly.

What is a standard option, a standard option gives the right to a fixed amount of an instrument (eg Shell shares, or barrels of oil) to buy or sell at a pre-agreed price.

Two types of standard options, the call option and the put option.

Call option: This option gives the right to buy an instrument at a predetermined price. Increases the price of the instrument than the call option is worth more because you have the right to buy at a lower price.

Put option: This option gives the right to sell an instrument at a predetermined price. Decline in the price of the instrument, then the put option worth more because you have the right to sell at a higher price.

For example, you think that the price of Shell will rise and take a call option on 100 shares of Shell at an exercise price of € 27, with the expiration date of the option is about three months. Because the price is currently € 26 euro, you would now have nothing to 100 shares for € 27 to 'allowed' to buy. But suppose the price in the next three months rose to € 29, you would therefore have the right to still be able to buy 100 shares for € 27, even though the actual rate at that time € 2 higher.

A binary option gives the right to a predetermined payout if the option 'in the money' is when you have the expiry date. If the binary option was "out of the money at the time of expiration of the term, then get the option holder nothing. (for more information about binary options)

You can include close binary options on stocks, commodities and currencies. As with standard options you can use binary options both decrease as increase of the instrument (eg share) speculate. With a call option you speculate on a rise in the price, with a pit on a decline.

Differences between binary options and default options; Now we have a nice picture of the nature of the two options, the differences are between them clearly.

  • A binary option provides a pre-determined amount if the option is "in the money", while a standard option is worth more as the gap widens between the actual price and the exercise price (if the price in the right direction moves)
  • A binary option can not be traded between, until the expiry date is settled there. A standard option and is just that frequently traded during the period.
  • A standard option gives the right to a fixed amount of an instrument (eg Shell shares, or barrels of oil) to buy Be it sell at a prearranged price. A binary option.
  • For self-acting binary options you need a lot less initial capital. In most binary options brokers, you can open an account with € 100 and open a trade with € 10.
  • To close a binary option contract does not need premium to be paid to the broker, which does so at the conclusion of a standard option contract. However, the payout ratio for binary options is slightly in favor of the broker, giving you slightly more than 50% in-the-money should be to reach break even.
  • The maturity of standard options ranging from a day to a few years, with binary options the term usually varies from 60 seconds to 1 day.
  • Trading binary options is easier. You have to take into account in binary options with fewer factors (they are called "all-or-nothing options") and the software binary option brokers is generally very user friendly.
  • Conclusion; Standard options and binary options offer both possibilities. The default option is ideal for hedging (protection against exchange losses) and speculate on price movements in the (medium) long term.

    Binary options provide the ability to starting small amounts quickly and easily respond to intra-day price movements of a large number of instruments, which undoubtedly contributes to the rapidly rising popularity of binary options under active investors.


    Roman Horvath

    If you want to know more on binary options and forex, you can find a lot online. If you want to trade online i recommend this website to trade directly.