UNDERSTANDING BINARY OPTIONS - LESSON 1

What are binary options?

Binary trading, sometimes known as digital options or FROs (fixed return options), is a fast, exciting way to trade the financial markets. Simply put, binary options involve basic decisions on whether the price of an asset will expire above or below the current price. Binaries with 6option.com are traded in short time periods of 60 seconds or up to 1 hour, expire automatically, and allow you to adjust the target profit or rebate levels in advance. Perfect for newcomers, or a complementary tool for forex traders. At 6option.com binaries are traded on four major asset classes, namely forex (currency pairs), stocks, commodities and indices. Aside from selecting the asset to trade you will want determine the amount to invest on any given trade, whether it is $100, $500 or any other value, depending on your confidence level and tolerance for risk. If your prediction is correct, the trade closes in the money and you earn the payout on the option relative to the investment amount, or your original investment back plus the payout percentage offered (up to 85%). If the market moves in the opposite direction of your prediction, the trade closes out of the money and you lose the original investment but receive a rebate that is offered on the investment amount (up to 15%). If the underlying asset price closes at the exact same level it was purchased, the trade closes at the money and you receive the same investment amount on the trade back to the account. You may open multiple positions on the same asset during the hour, should that suit your trading strategy. Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital.

Benefits to trading binary options

1. Simplicity to learn and get started Binaries are a simplified yet exciting way to trade the financial markets, covering a wide range of assets including forex, commodities, shares and stock indices. Binary options are much simpler to understand than other types of financial instruments since you only need a sense of direction, e.g. Will the AUD/USD close above or below the current price? as opposed to the magnitude of the move. 2. Defined risk & return The return is known from the outset, as is what you stand to lose, in contrast to margined forex, CFDs, futures, sold options and other derivatives where losses can increase exponentially. Binary options close automatically at expiry of the trade, so there's no need to constantly monitor your positions. Trading on our platform also allows you to set a predetermined payout and rebate, so the potential outcomes are known in advance. 3. Profit from rising & falling markets trade any conditions Binary options provide trading opportunities in all market conditions and are ideal for traders who want to profit from both rising & falling markets. If you believe the price of the underlying market will rise, buy a call binary option. If you believe the price of the underlying market will fall, buy a put binary option. 4. No commissions no hidden fees to worry about 6option.com offers its clients the ability to trade online with no fees or commissions charged on trades. 5. No leverage or margin calls to worry about Unlike margined forex, futures or CFD trading, binary options are not a leveraged product. Therefore, losses can never exceed your initial deposit and you do not need to worry about margin calls, using stop orders or monitoring your open positions. 6. Risk management Binary options are often used for speculative trading but when used properly, can be an effective risk management tool to hedge exposure of a current position in an underlying market. 7. Profit opportunities in multiple markets

Binary options provide convenient access to a wide range of markets and asset classes including forex, shares, commodities like oil futures and stock indices all on one account. Often times a stock or forex trader will need to endure long periods of relative inactivity and short bursts of trading opportunities. Trading binaries can be more versatile and offers opportunity even when markets are trading flat. A winning trade will pay the full payout (up to 85%), even if it was in-the-money by only a fraction of a pip, since you are speculating only on directional movement. 8. Free Training & Support 6option.com offers its clients a full suite of free training & support plans, depending on deposit and account levels. Ask us today for the range of support and trading tools we provide to our clients.

Examples of how to trade

Binaries are ideal for trading both short-term economic events, a "fundamental" way of looking at the markets, or short-term technical indicators, a "technical" way of looking at the markets. Here are two examples of trading binary options, one on the GBP/USD and the other on Gold futures. Trading the Pound Sterling against the US Dollar (GBP/USD) In the example below, the binary option on GBP/USD is offering a payout of 78%, with just over 4 minutes remaining to place a trade for the next expiry window of 12:30 GMT. The current market price of 1.59353 is showing between the CALL and PUT buttons below.

A glance at the chart shows a drop in the price over the last 30 minutes, possibly driven by negative news on the British economy. If you were to predict the GBP to continue to fall, you would buy a PUT option. If at 12:30 the price closes below the strike price by just one pip

(let's say from 1.59353 to 1.59352), you've earned the full payout of 78% on your selected investment amount for this trade.

Trading Gold futures on the news Let's say after reading the latest newswire from Bloomberg, you decide to buy a binary CALL option on Gold to profit from a pullback in stocks and lower yielding assets. Golds Rise to Continue above $2,500/oz on Negative Real Interest Rates Gold edged up $3.50 or 0.21% in New York yesterday and closed at $1,690.30. Silver rose to $32.27 in Asia, slipped to $31.90 in London, and then hit a high of $32.40 in New York and finished with a gain of 1.84%. Gold edged down overnight, but is not far from the 6 month high hit last session as weak economic data from the US bolstered hopes of further stimulus measures by central banks. US manufacturing contracted at its fastest pace in more than three years in August and US construction spending dropped in July by the greatest amount in a year, the disappointing ISM index and construction spending data were released yesterday

In the theoretical example above, it's 12:17 on our trading platform and Gold Futures are

trading at 1299.08. You believe that gold prices will go up by the end of the hour. You execute a $100 trade, or CALL option, with a 75% payout and 5% rebate offered at that payout level. The strike price is 1299.08, the current price of the asset in which you purchase the option. The expiry price at 12:30 is 1299.15, and you were correct in your prediction. In this case the payout is 75% of the trade, so your profit is $75, or (.74 x 100). The account balance is credited the amount of $175, or $100 from the initial investment amount plus $75 profit. If in the above case you were not correct, and the expiry price closed below the strike price of 1299.08, you would lose the original $100 invested but receive the rebate offered of $5 back to the account balance, or 5% of $100. Keep in mind, 6option's binary options are traded without leverage (e.g borrowing on a broker's capital) so your maximum loss is limited. In the theoretical trade above, the maximum you could lose is $95.

Some basic terminology

Current price: the price of the underlying asset. Strike price: the price of the underlying asset when the option is purchased Expiry price: the price of the underlying asset at the time of expiry of the option. Payout: The percentage return on investment for successful or "in the money" trades. Rebate: The percentage of the investment amount returned to the balance for unsuccessful or "out of the money" trades. In the money: an option currently trading at profitable levels or closed at a profit, i.e. a CALL option that expires above the strike price or a PUT option that expires below the strike price. At the money: an option currently trading at the strike price (neither above nor below it) or closed where the expiry price is the same as the strike price. In such a case the initial investment amount is returned to the account balance with no charge. Out of the money: an option currently trading at unprofitable levels or closed at a loss, i.e. a CALL option that expires below the strike price or a PUT option that expires above the strike price. Forex binary option: Forex binaries are binary options traded on a currency pair such as EUR/USD. The currency pair tells the reader how many U.S. dollars (the quote currency) are needed to purchase one euro (the base currency). Stock binary options: Stock binary options are binary options traded on stocks such as Apple

or Google. Commodity binary options: Commodity binaries are binary options traded on energy or metals commodities, such as gold futures, oil futures, platinum and silver. Index binary options: Index binaries are binary options traded on global indices such as the Dow Jones, FTSE 100, CAC 40, S&P500 and MICEX.

Question? Here's how you can reach us

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