Binary Options versus Traditional Options explained
Traditional options are consider conventional options trades that take place on the options markets and trading platforms.
Fixed return options or digital options are the other terms for Binary Options,
Here the trader has an all or nothing trading strategy and there are 3 options in this, you either win loose or break even.
Binary Options vs Traditional Options: what are the similarities?
Traditional Options and Binary options have many points that are very similar. Both are trade formats that work on the concept that they have a settlement price (strike price) and a predetermined expiry time/date. Once this time has expired the conclusion outcome of the trade will be settled, may it be profitable or on a loss.
Besides that on both trading formats you have the ability to trade the same underlying assets. This ranges from currencies pairs, Commodities Stocks and indices.
Binary Options vs Traditional Options: so what are the differences?
- One the main differences is how the trade is actually structured. The concept of binary options trading with the work Binary as focus is made to be very easy simple and fast. It is almost a form of gambling as you simply predict the direction the assets will move towards for the pre-selected time frame.
- Traditional options are way more complicated. When trading traditional options, you have are several different ways of trading and profiting from the markets. So it is not a coin toss trading format like the Binary Options.
- When trading Traditional options you have another advantage. You will be able to close out trades before expiry, where as in binary options this is not possible, the moment you have placed a trade in Binary options your work and control is over.
- Another points is that Traditional options do not force the trader to exercise or buy back the option once the trade expires, while Binary options trades are obligated to exercise the options they trade when those options expire.
- The pricing of Binary options is different and simpler as traders can use the market price of the assets to evaluate the performance of their trades. The traditional options market uses a special price quotation system which shows quotes on both sides as well as the month of commencement of the option.
- It serves no purpose to hedge in Binary options where in Traditional Options this is a way to protect yourself against losses.
- Traditional Options trading is more risky as there are many more aspects to take into account and additional costs that come with this, whereas binary options you enter the trade always on an approximate 50% chance or being in the profit.