Vanilla Plain and Binary Options

Vanilla Plain and Binary Options

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2020-02-17 00:26:00

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:

  1. · call options - open opportunities to buy an option at a set price;
  2. · put options - enable you to sell an option at a set price.

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.

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

  1. · The decision to close the deal on vanilla options is made by the trader, and in binary it closes itself.
  2. · The amount of profit and loss for classic options is not known, for binary it is determined immediately.
  3. · Making money on classic options will require significant investments starting from a thousand dollars, and on binary options you can start with two hundred dollars.
  4. · The duration of binary options can reach several seconds, and vanilla options - several weeks.
  5. · Losses in vanilla options are minimal, but the profit is less. In binary options, no more than the invested amount is lost.

 

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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Damian

Damian

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I have been trading Forex for more than 5 years, mostly with manual and automatic trading. I set up advisors for round-the-clock automated trading. I'm sure I can help to establish your trading skills....

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