An option (from the Latin optio, meaning "desire", "choice") is a special type of financial instrument (agreement, contract, agreement) that provides the right to purchase or sell an asset. Traditionally, in the financial sector, classical and binary options are distinguished.
Classic or Vanilla Plain options.
A feature of this type of option is:
- The owner of such an option is not obliged to use the right granted to him: he decides whether to make a transaction or not.
- Making a profit depends on the amplitude of the asset price fluctuation.
- An asset may be expressed in the form of a commodity, currency or securities.
- The price of an asset is fixed immediately and does not change for the entire duration of the option, which can be several minutes or several months.
- You can request the exercise of the rights indicated in the option until its completion.
- The option seller receives a premium commensurate with the risk of financial loss during the conclusion of the contract.
Depending on the principle of action, classic options are:
By execution time:
- European - performed after the expiration of the option;
- Asian - carried out at the average calculated price after the end of the option;
- American - option transactions can be made at any time during its operation.
Binary options are the opposite type of classic. They made on their basis, but contain new parameters and conditions that significantly and distinguish them from the classical ones. A feature of this type of option is:
- They are made only under the following conditions: when the price of an asset reaches a certain limit or is within a certain range.
- The purpose of conducting transactions on such options is to profit from their subsequent sale, and not the asset itself. Therefore, such options are widespread on online exchanges.
- The principle of transactions is not to buy or invest, but to choose the right asset price rate: for growth or decline. The outcome of the option depends on the decision: profit or loss of everything.
Differences between vanilla options and binary options
To get the maximum profit you need to study the assets well and choose the most suitable type of option for yourself.
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