The word “binary” can be thought of as applying to an either x or y situation. The sun is out or it is not; Fred is dead or he is alive. In the trading world, binary options offer chances to bet on the answers to binary questions. In essence, a broker will state that the price of potatoes is going to be 10$ at the close of the day’s trading. The trader agrees – or not, earning a return if correct.
Commodity options involve future predictions, though there are marked differences. If your homework indicates the price of potatoes is going to rise, you buy some at the current market price (the price is actually a “margin” or the percentage of the actual cost). You agree to a timed contract and, if potato prices soar, you can sell and make a tidy profit. If prices fall, you have to buy the potatoes at the end of the specified time period, taking a loss.
Let’s look at how these two types of future options differ.
The Graph Factor
Traders in commodity options study graphs and charts, identifying trends and then making educated decisions. It is impossible to accurately predict at what specific price a potato will end the day; a trader in binary options is making a bet, there is no chart required.
Fast and Furious
The trader of commodity options will see potato prices fluctuate, likely over a period of months. The trader of binary options will see fast results, with 24 hours; experiencing frequent adrenaline rushes. Serious traders have warned of the potentially addictive nature of this exotic trading practice.
The Seductiveness of Simplicity
Trading in binary options is undeniably simple; you place a bet on “yes” or “no” and wait to see what happens. While seasoned traders may feel unsettled by making such stabs in the dark, the novice may be drawn to the system’s primitive nature.
The Crystal Ball Effect
With binary trading, you know how exactly much you will win, if you win, and exactly how much you will lose, if you lose. This means that you can carefully manage risk; there is obviously much less control in the commodities market.
Any financial trade carries risk and potential pay offs; whether dealing in commodities or binary options, do your homework when it comes to choosing a broker, choosing a stable, well-known firm.