There are a few forms of binary option trading but each trade always boils down to whether the contract is in the money or not. The market for binary option trading is extremely fast paced - aspirations are dated in minutes and hours and not days or weeks. Day traders who learn to land in the money trading binary options make very good money indeed.
High Yield - High Risk Investing - All in a Days Work for a Binary Option Trader
Typical yields on binary option stocks contract fall anywhere from 60-81% depending on the particular issue and broker. It is literally impossible to compute the compounding rates of return on some of these investments because the yields are so high. Here's an example of how a trade payout might look.
We'll first examine a contract that expires favorably. If you invested $200 in a put contract that paid 75% return expired in the money what would the cash payout be? The payout on your $200 position would be $350, including your initial investment of $200 plus $150 in profit.
What Happens When Things Go Wrong
That leaves us with the situation where a contract expires out of the money - what happens then? This will depend on your broker. While some brokers allow trading of binary options in a secondary market - unloading unwanted positions, others are hold to maturity only. Brokers that require holding to maturity do sometimes have a fixed payout on out of the money contracts - saving the hassle of trying to squeeze blood from a stone. Other times the binary option contract has no payout or isn't otherwise salvageable. Suffice to say it is difficult to unload an unfavorable binary option contract.
More on binary options:
Online Trading Stock Securities - Be Ready for Action
Put Option Payoff This Year End - 3 Factors Will Move the Market
Cheap Stock Market Trading - Why Options Are More En Vogue
Binary Options Brokers