There are two main reasons why we may choose to invest in Binary Options:
1. To Speculate
One may think to speculate is to bet (or gamble) on the movement of a security, and in our case we speculate on the movement of one currency against another. The advantage is that you aren’t limited to making a profit only when one currency goes up in value against another. Because of the versatility of options, you can also make money when that currency goes down against another (or even sideways).
This is the territory in which the big money can be made – and lost. For this reason, options have the reputation of being risky.
When you buy an option, you have to be correct in determining not only the direction of the market’s movement, but also the size and the timing of this movement. The successful investor predicts whether a market will go up or down, and they have to be right about how much the price will change as well as the time frame in which it will happen. Normal investors should also be aware of commissions. The combinations of these factors means the odds are stacked against the average investor
So why do people speculate with options if the odds are so biased against them? Aside from versatility, it’s all about using leverage. If you are controlling 100 shares with one stock option, it doesn’t take much of a price movement to generate substantial profits.
2. To Hedge
The other function of options is hedging.
Think of this as being a policy of insurance. Options can be used to insure your investments against a downturn, just as you might insure your home or motor vehicle.
Some critics say that if you are so unsure of the stock or share you choose that you need a hedge, the you shouldn’t make the investment in options. On the other hand and especially for large institutions, there is no doubt that a hedging strategy may be useful.
Even the individual investor can benefit. Supposing you wanted to take advantage of technology stocks and their upside, but also wanted to limit any losses. Options would give you the ability to restrict your downside while enjoying the full upside in a cost-effective way.
Employee Stock Options
Although employee stock options (ESO) aren’t available to everyone, this type of option might be classified as a third reason for using options.
Many companies offer stock options as a way to attract and keep talented employees. They are similar to regular stock options in that the holder has the right but not the obligation to purchase company stock. The contract, however, is between the holder and the company, whereas a normal option is a contract between two parties that are completely unrelated to the company.
Options Domination Currency Pairs
With Options Domination, for the moment we are only interested in binary options strategies across currency indices (currency pairs) However, in the future we may be looking at other securities so it is as well to be aware of the other opportunities for Stock, Shares and Bonds.
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