Digital Options Trade Anatomy 101

Digital Options Trade Anatomy 101

Digital options traders receive a pre-determined profit amount on each trade that finishes in the money. When a trade finishes out of the money, the only money lost is the exact investment amount as decided upon by the trader. Such transparency allows for easy money management and can certainly assist when it comes time to make investment decisions. This upfront system also allows for a high degree of risk control.

Since digital options trades are timed, traders are not forced to make some of the same decisions that those who trade in the traditional markets have to make. There will be no stop loss and no need to buy or sell shares, as none are ever owned when trading digital options. When trading with binary options, there is a Sell feature, but this is only used as a means to minimize losses whenever your selected asset is not moving in the predicted direction. This feature is optional, however, and can be completely ignored should you choose to do so.

At the base of each trade is the forecast of whether the price of your selected asset is going to increase or decrease. The asset price will need to be higher or lower than the entry price at the time the trade expires if you’re going to earn any money. Let’s now examine how a basic digital options trade will work…

The first step is to select an asset. You will only be using this asset for the single trade and will in no way own it. Once the trade is over, so is your connection to the asset. With the asset selected, you’ll start the analysis process, with an expiry time in mind. The expiry period will not be selected until you lock in your trade.

The goal with the basic trade is simply to determine whether the price is going to be higher or lower than the starting price when the expiry time wraps up. Digital options will provide you with the entry price. Note, however, that this price is subject to change. If you look at the entry price but do not trade at that time, the price is likely to be at least slightly different when you come back to complete the trade.

If you think the asset price is going to be higher at the time of expiry, select a Call option. For lower, select a Put option. The investment amount will be your decision, but low minimums do apply. Trades with brokers start at only $1 and go up from there. The minimum for standard digital options trades is only $ 1.

Basic digital options trades and 30/60/120 second trades function just the same. The only difference is the expiry time choices. The Sixty Second trades are the right choice for fast trades, with the basic binary trades being the better choice for slightly longer expiry periods. For much lengthier trades, Long Term trades are going to be the way to go.

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General Risk Warning: Trading Binary Options carries a high level of risk and can result in the loss of your investment. As such, Binary Options may not be appropriate for you. You should not invest money that you cannot afford to lose. Before deciding to trade, you should carefully consider your investment objectives, level of experience and risk tolerance. Under no circumstances shall we have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to Binary Options or (b) any direct, indirect, special, consequential or incidental damages whatsoever.