Being young gives an investor a distinct advantage. Because you have more time you can take more risk compared to investors that are closer to retirement. This gives you more freedom to play around on the stock market.
Many young investors begin building a portfolio by contributing to a 401K or IRA. Once you’re comfortable with that and save up a little extra money, you may start considering your other investment options. Mutual funds and EFTs are the logical next step for young investors. But should you take a little more risk for a bigger, quicker reward?
Binary options are one of the lesser-known stock options because they aren’t as common, but they are quickly becoming a popular investment for novice and experienced investors. Since you’re young and able to take a little more risk on the stock market, binary options could be worth trying.
However, you need to know what to expect and how binary options work before your first trade. Once you’ve finished this overview, you can find out more about binary options and read the latest news at the 24Option.com blog.
What Are Binary Options?
Binary options are aptly named. They don’t work like other stocks that have a continuous payoff and are held for a period while they gain value (or possibly lose value). Binary options work off of a yes/no model. You are hedging whether an underlying asset, like gold, will be worth a certain amount at a certain time. If the asset is worth the amount specified you’re “in the money”. But if you’re even a dollar short you’re “out of the money”.
You either make a set amount of money per option if you’re right or you make nothing if you’re wrong. It all depends on how the underlying asset performed.
How Binary Options Work
So, how exactly do you buy binary options and get paid? There are various online platforms that trade binary options. Each binary option is based on whether a particular underlying asset will be a certain price at a certain time. The traders will analyze the underlying asset to determine the price of the binary option or allow you to select a price.
For example, the binary option being offered for $65 based on stock XYZ being more than $30.35 per share by 3:00pm. The payout is $100. Stock XYZ closes at $30.40 at 3:00pm. Because the result was a “yes” stock XYZ was higher then you get a payout of $100 profiting $35.
The payout isn’t based on the actual value of the underlying asset just whether the asset is or is not a certain value at a certain time. In most cases, once the binary option is purchased you hold onto it until is matures – this could be as little as 5 minutes or as long as a week depending on the set timeframe.
The Risk and Reward of Binary Options
As already noted above, there’s no in between with a binary option. This makes them a high-risk stock option. It’s definitely a gamble since you won’t retain the value of the binary option that’s bought if the underlying asset doesn’t perform as expected. That means you need to be very familiar with the publically traded assets you’re bidding on.
But it is a quick payout and you can easily double or triple your money. You don’t have to worry about managing them over time like other investments and there’s no long-term commitment. Binary options have also gained in popularity because they are simple. Unlike other types of stock binary options are pretty clear-cut and straightforward.
There is also a very low cost of entry unlike other investments. Binary options are usually less than $100, sometimes well under $50. In some cases you can choose what you want to pay, which gives you more control over the risk cap.
With this type of option the reward is capped, but the risk is capped as well. If you are familiar with the underlying asset and do your due diligence to find a reputable trader, binary options could be a way to begin investing beyond your 401K and IRA.