One of the more common underlying assets binary options traders choose to invest in are stocks.
A long list of stocks is available for options trading, spanning from Nike to Barclays and British Petroleum.
The list is growing as binary options sites add new stocks to their portfolio like Akbank Turk, Deutsche Bank and Volkswagen.
For those of you who are just starting out your binary options career, let's go over the definition of a stock.
A stock or capital stock of a company represents the original capital paid or invested into a business by its founders.
It functions as a safety net for the creditors of a business since it cannot be withdrawn to their disadvantage.
Now, it gets a bit more complicated because the stock of a business is divided into shares.
Depending on the total amount invested into the company, a share has a certain declared face value, commonly known as the par value of a share.
The par value is the minimum amount of money that a company may issue and sell shares.
For example, binary options traders can invest in Nike, a company that, in 1980, became publicly traded with an Initial Public Offering of 2,377,000 of Class B Common Stock on the New York Stock Exchange with the symbol NKE.
On most binary options platforms, Nike has an hourly options expiry level that is equal to the sum of the LAST, value, ASK value and BID value, divided by 3.
The result is rounded up or down to the decimal.
Also available are binary options end-of-day, week and month expiry levels, which are the values that appear in the Reuters Field at the expiry time.
Now that we have looked at stocks and their general availability on options platforms, let's look at how real life business developments can affect stock price and in turn, influence your earnings.
During the month of February, binary options traders saw a continued stock price slide in companies like Apple (AAPL).
For example, its stock closed at US$197.
05 on Tuesday, February 23, down $3.
37.
The question for those who trade binary options on Apple is what's going to happen now down the line? It's only natural to assume this downward trend will continue.
However, in contrast, Apple appears to be self-assured in its future.
Binary options traders who follow the news would know that on top of the launch of the iPad, the company advertised for an engineering manager to work on new platforms for the iPhone OS.
On top of this, the iPhone gained ground in the worldwide sales market, taking over the third spot from Windows Mobile.
Now it's your turn.
You signed up for an online binary options account and you are about to purchase a Call or Put option on Apple.
You can either go by the current market trends (Put - stock will go down) or by the company's recent achievements (Call - stock will go up).
The biggest advantage here is that with binary options, the stock only has to move by one pip for you to collect the full returns on your investment.
And with returns between 60 - 71% the probability of you collecting a nice sum is quite in your favour! Back to our Apple story: on Wednesday, February 24, AAPL shares moved higher throughout the trading day.
By the mid-afternoon session, the stock was trading at US$200.
09, a gain of $3.
031! There you have it binary options traders.
Had you decided that it was Apple's latest business developments that would influence its stock you would have purchased a Call option and be in-the-money by the end of the day.
Had you believed that the downward trend would continue and purchased a Put option, you would at least get 15% of your investment back.