{"id":197595,"date":"2021-08-26T23:00:21","date_gmt":"2021-08-26T22:00:21","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=197595"},"modified":"2021-08-27T14:06:24","modified_gmt":"2021-08-27T13:06:24","slug":"binary-options-trading-with-bitcoin-how-it-works","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/binary-options-trading-with-bitcoin-how-it-works\/","title":{"rendered":"Binary options trading with Bitcoin (BTC): How it works"},"content":{"rendered":"

Many traders would first think of<\/span> margin trading<\/span><\/a>, with its high risk, high reward approach. However, there\u2019s another high-risk strategy out there: Binary options trading.<\/span><\/p>\n

What Is Binary Options Trading?<\/b><\/h2>\n

Among many financial instruments to tackle the securities market, options contracts are the most popular. As of mid-August, 2021, the average options trading volume amounted to 35.1 million, out of which 72% belonged to the top 100 public companies by market cap. According to a MarketChameleon <\/span>report<\/span><\/a>, they are mainly distributed across financial services, tech and consumer stocks.<\/span><\/p>\n

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Image courtesy of Market Chameleon.<\/figcaption><\/figure>\n

Regular options are simply contracts that give investors an option (but not the obligation) to buy or sell an asset at a set price prior to a specific date in the future. Because it\u2019s an option, this contract may or may not execute. If an investor decides to buy the <\/span>option<\/span><\/i> to acquire the asset down the line, they will make a \u201ccall option.” Likewise, if they decide to buy the <\/span>option<\/span><\/i> to sell the asset later, they would be engaging in a \u201cput option.”<\/span><\/p>\n

There are several different nuances in the world of options trading. As complicated as this world may initially seem, binary options trading is fairly straightforward.<\/span><\/p>\n

In essence, a binary options trader is betting that the price of an underlying asset will either go up or down. Underlying assets could be stocks, forex, ETFs, futures, and even cryptocurrencies. The price of one contract is between $0 and $100. The expiration date of the contract (i.e. the expiry) can be in seconds, minutes, hours, or days.<\/span><\/p>\n

This binary speculation is bound within the binary option contract. However, unlike regular options trading, <\/span>binary contracts have limited stakes<\/span><\/a>. Let\u2019s take a closer look into what this means.<\/span><\/p>\n

Example of Binary Options Trading with Bitcoin<\/b><\/h2>\n

Imagine a trader who is confident enough to place a bet\u2014through a binary options contract\u2014that the price of Bitcoin will go up. The trader enters a contract with an expiry period of one week. The contract will also feature a strike price, which is the point of profitability. In the world of binary options, different strike prices will be available with different odds. The tougher the odds, the higher the payout.<\/span><\/p>\n

If the price of BTC is above the contract\u2019s strike price at the end of that period, the trader will earn a profit according to the contract\u2019s predefined odds. This is the traditional form of binary options, known as the up\/down binary.<\/span><\/p>\n

In practice, we can break down this process accordingly:\u00a0<\/span><\/p>\n