Trading binary options is a relatively simple form because, at its most basic, you are simply predicting the way the price of an underlying asset will move by a set time. There are some more complex types of trade available, such as touch or no touch and variations on them, but generally you only have to predict the way the price will move over a period. In these cases, you will trade a call or put option depending on the expected direction of the price movement.
A call option applies if you expect the price of an asset to rise. For example, the stock price of ABC Inc. may be $7.50 but you know the company is due to make an announcement of a major new contract. Since this is good news, you expect the price of the stock to rise as a result and so will purchase a call option that expires at a set time.
If the price is higher at that time, even if it’s only $7.51, your prediction is correct and you’ll finish in the money. Should it be $7.49 or worse, however, the trade fails and you finish out of the money. No movement at all in the price means you finish at the money and receive your stake back with no profit or loss.
A put option is the opposite and is one you will trade if you think the asset price is due to fall. You will therefore purchase a put option that will finish in the money if the price is lower at the end of the set period. If the $7.50 price falls to $7.49 or below, the trade is successful. If it finishes at $7.51 or better, however, the trade fails and you finish out of the money.
Making a call or put option is the simplest form of trade because you only have to predict the way the price of an asset will move. The extent of the move is not relevant; you simply have to get the direction right. However, although this removes a lot of the complication from the trade itself, it doesn’t reduce the amount of research and analysis you need to undertake. To make a successful call or put trade, you still need to be aware of facts that will help you determine the way the price will move.
You still have to choose the underlying asset carefully, undertake thorough technical or fundamental analysis and then make your trade based on facts. If you do that, your call or put option has more chance of being successful.