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Crucially, there are a number of key terms you need to be aware of before we decipher some real-world binary options examples. Therefore, be sure to read through the following:

Long vs. Short

Binary options broker always gives you the option to go long or short. In layman's terms, this refers to the direction you think the asset will go. Let's say you want to trade binary options on the FTSE 100. If you feel confident in the index, you will be long. This is no different from placing a call option in the traditional options space or a buy order in the world of CFD and Forex trading. At the other end of the spectrum, you would need to take a short position if you were bearish on the FTSE 100. In other words, you would speculate that the price will end lower after the binary options contract expires. This is no different from placing a put option or a sell order in traditional investment.

Strike price

The strike price for binary options is a crucial concept that you need to know exactly. If you have traded traditional options contracts or CFD with download Exness before, you will be pleased to know that the strike price works the same way in binary options speculation. For those who don't know, the strike price refers to the "midpoint" of a binary options trade. You then have to decide whether to go long or short the asset in relation to the strike price.

For example, let's say that Nike shares currently have a price of $75 and the broker offers a strike price of $80. If you think that the price of Nike shares will be more than 80 USD after the binary contract option expires, you have to go long. If you thought the opposite, you would have to go short.

In most cases, binary options brokers offer different strike prices for a single asset. This way, you can choose your preferred risk. For example, alternative strike prices for Nike shares could be $85 and $90. The higher the strike price, the more you would receive if you successfully place a long order (and vice versa if you place a short order). This is because you should expect a higher reward as the chances of the trade become less likely.

Expiration date and time

Similar to traditional options contracts, binary options always have an expiration date and time. This is the time when the binary options set and you either win or lose your trade. As mentioned earlier, binary options brokers usually offer different expiration dates to choose from. This can be as short as 60 seconds to as long as a full year.

As you might expect, the shorter the expiration time, the less effective the research and analysis becomes. In other words, there are no technical indicators or fundamental news events in the world to help us predict the future direction of an asset on a minute-by-minute basis. In fact, experienced investors rarely see a technical time frame of less than 4 hours.

However, the expiration date of your binary options can affect your trading returns. For example, if you speculate on the price of a binary options contract that expires every 60 seconds, you will get a much higher return than with an option that expires in three months.