The binary options market is very appealing given that the rules are clear and simple. Some people look on binary options like placing bets, while others view it as a trade. Both theories can be true. That depends on how traders perceive the binary options market. If they place trades with no background knowledge and simply trade according to how they feel, then one might say that binary options are a simply gambling. On the other hand, if traders base their trading decisions on numerous market factors and use a strategic approach, then it is categorized as trading. There are multiple types of binary options, but the mother of all binary options is the High/Low or Call/Put option. This is the type all other types are based on. It is the easiest to understand and newcomers can grasp the main idea in minutes.
How does High/Low Option Work?
The High/Low option or Call/Put option is the simplest and most common type of binary options. Basically, the trade consists of deciding whether a price is going up or down in a specified timeframe. This is the only question that you need to try answer correctly.The trader selects an asset and buys a position, if he believes that the asset price will rise. In order to win a profit, the price has to go up. It is called the strike price.
Similarly, if the trader believes that an asset price will drop below its current price, he clicks the Put option, and if he/she is right, and the price of the chosen asset actually drops, he is entitled to a payout.The High/Low trades are usually short-term trades and have a short expiry date/time. The expiry times are usually: 30 seconds (recently introduced), 60 seconds, 15 minutes, 30 minutes, 2 hours, 24 hours, a week, a month, etc. The High/Low options are most frequently traded with the shortest expiry times like 60 seconds or 15 minutes. Since they are called the Call and Put options you might want to know why. Call simply refers to a contract in which the contracting party agrees to sell its ownership share in an asset to another party at a specified price. If the asset price rises, the buyer of the contract makes a profit. Put is also a similar contract, where the buyer of the contract gains profit if the asset price drops.
Example of High/Low Option
Let’s imagine that you want to place a trade on a currency pair, e.g., USD/EUR. The dollar’s value is 1.124 against the Euro (€1 is $1.124). For some reason, you believe that the dollar is going to rise in value (e.g. you heard it on the news, economic analysts predicted it, etc.) and you bet on the Call option that the USD value is going to increase and you choose a 2 hours expiry date. You invest $100 with a payout rate of 80%. If the USD value should really rise against the Euro within two hours, even for just one pip, you walk away with $180. You get your investment back, and the 80% on it.
Strategic Approach
Even if binary options look easy at first glance, it is not that simple. Moreover, you want to be a trader, not gambler. Therefore, it is very important to follow the basic steps when entering a new market. Rule number 1 is, and always will be, gathering information. If you want your trading career to pay off, you will start with learning all the tricks of the binary options market. The tricks include more or less complex strategies, different approaches and types of trading. For example, to properly use the High/Low option you should read about the possibilities it offers. Also, one of the key parts is information on assets. It cannot be stressed enough, how important it is to study the asset you want to trade. Be observant, and watch the price movement of the asset and its past behavior.That alone will tell you a lot about the value of the asset. If you combine it with what economists say about the asset, you can figure out your winning combination.
Potential Profit with High/Low Option
The top binary brokers offer decent payouts on binary options trades, like 85% only for this type of trade. On the other hand, if the brokers are able to offer such a high payout, you should be aware that the risk-factor is very high. Losses are always bigger than profits. Binary options require a lot of time, patience, and commitment to increase your profit frequency.
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