Digital options can make you more money than stocks while limiting your risk. Learn about this exciting new investment type now!
Digital options are more commonly known as binary options. Both names reflect the crucial characteristic of digital options that they only know two outcomes – you are either right or wrong, and it is unimportant how right or wrong you are.
The digital world of computers works with the binary system. It knows only 0 or 1, right or wrong. Any program and app that you have ever used were based on this basic principle.
The name “digital options” indicates that these options work in the same way. Where conventional assets allow any outcome – you can win or lose any percentage of your investment, digital options use the binary system. You are either right or wrong, and that is all that matters.
Because of this reduction of possible outcomes, there are always only two predictions one option allows.
- With high / low options, you predict whether the market will rise or fall.
- With one touch options, you predict whether the market will reach a certain target price.
- With boundary options, you predict whether the market will break out of a certain price range.
With all options types, it is only important whether your prediction comes true or not. By how much your prediction comes true is unimportant.
- With high / low options it is unimportant by how much the market rises or falls. If it moves only the smallest possible increment in the direction of your prediction, you win your option. If it moves only the smallest possible increment against your prediction, you lose your option.
- With one touch options, it is only important whether the market reaches the target price or not. How long the market remains at the target price or by how far it exceeds the target price is unimportant.
- With boundary options, it is only important whether the market breaks out of the price channel. How far or how long it breaks out of the price channel is unimportant.
Advantages of digital options
More profit with small market movements
Binary options work fundamentally different from conventional assets. With stocks, for example, you invest in rising prices. If the stock rises by 1%, you make a profit of 1%; if the stock rises by 5%, you make a profit of 5%.
With binary options, you get a fixed payout, regardless of how far the stock moves. Depending on your option type, this payout can be up to 1,500%, making binary options far more attractive to trade short movements than conventional assets.
The most commonly traded binary options type is high / low options, which offer payouts of 70% to 95%. Requiring you only to predict whether the market will trade higher or lower than the current price after a certain period of time, high / low options allow you to make a profit of up to 95 percent with even the smallest market movements.
If you invest in rising prices with stocks and with binary options and the market rises by 0.1%, you will make a profit of 0.1% with stocks, which is barely enough to cover your broker’s fees, but a profit of 70% to 95% with binary options – clearly the more attractive option.
When you lose your option, you will lose your investment. With the right strategy, however, this is not a problem: Imagine you want to invest $100 in a stock X and expect the stock to rise by 5% over one year – a realistic expectation. If you are wrong, for example if there is a stock market crash, you could easily 50% of your money – we have all been there. In other words, you are betting a 5% gain against a 50% loss.
With binary options, you could invest only $10. With a payout of around 80 percent, you could make a higher profit than with a stock investment of $100, but you have significantly limited your risk. Used correctly, binary options can reduce your trading risk while offering you a higher earning potential.