Table of contents:
When trading Binary Options, there are a total of four assets (trading goods/underlying) between which you can choose. Newcomers to Binary Options in particular often choose equities as underlying, i.e. they trade stock options. But what are stock options – independent of the special Binary Options in the first instance – and how does trading in these options via the stock exchange actually work?
Shares are among the securities that are not only traded directly by buying and selling the securities but are also underlying for many indirect trading instruments, which are usually summarised under the term derivatives. Options are among the most commonly used derivatives, and in the field of options, stock options are again particularly popular. On this page, I will show you how to trade stocks successfully with Binary Options
How does trading in stock options work?
Trading in stock options is based on the assumption that each option contains a specific share value as the underlying asset to which the option relates. On the one hand, there are call options, which correspond to those that investors speculate on rising share prices.
On the other hand, there are the put options, which allow you to “bet” on falling stock prices. The following example can illustrate in detail how stock option trading works:
1. Choose the Facebook share
2. Do a forecast of the price movement
Suppose you want to speculate that the price of Facebook shares will rise in the coming weeks or months. In this case, you need to look for a call option that contains the underlying asset Facebook shares. These stock options are available in different variants, which differ primarily in the term and the amount of the underlying price. Since the current price of the Facebook shares in the example is at a level of $ 260, you could look for a stock option that contains a strike price of $ 260, for example, and has a remaining term of six months, for example.
3. Set up the Binary Options trade:
- Choose the expiry time
- Choose the investment amount (from $ 1)
- Open the trade (higher or lower)
- Wait for the result
In this case, you would then make a profit of up to 83% if the price of Facebook shares were to rise to more than $ 260. If the price falls, however, the value of the options will gradually decrease until the option actually becomes worthless in the end.
Opportunities and risks with stock options
Compared with direct trading in shares on the stock exchange, stock options involve both an opportunity for higher profits and greater risk. The chance of higher profits results from the leverage with which the options are generally equipped in most cases.
Leverage ensures that the value of the option increases by five percent, for example, if the share price increases by one percent. The (theoretical) leverage, in this case, would, therefore, be 5:1. However, this leverage, in conjunction with the time limit on the stock option, also causes the risk of losses to be higher. In the case of stock options, there may even be a total loss, which is rather unlikely in the case of direct investment in shares.
When you are using Binary Options to trade stocks you can lose your investment amount quickly. It is an all or nothing trade. Otherwise, you will win a high yield of up to 100%. Binary Options are high risk and reward financial products.
Things to know about binary options with equities as underlying
If you have not been very familiar with stock options so far, this previously mentioned knowledge now offers you a good opportunity to enter into trading with Binary Options and to choose, for example, shares as an underlying.
Shares are particularly popular with beginners as an underlying asset because many public limited companies are already known anyway, so that you as an investor can form an opinion more easily as to whether you can expect prices to rise or fall than is the case with commodities or currencies, for example.
In addition, it is relatively easy for you to obtain important information about the shares and company news, which can naturally influence the share price. The popularity of stocks as underlying for Binary Options is also reflected in the fact that most Binary Options Brokers offer at least 20 different stocks as underlying, which means that the choice is greater for you than, for example, with commodities and currencies.
Brokers who offer Stocks for Binary Options
Not every Binary Options Broker offers stocks as underlying for Binary Options and sometimes the yield is not very high if you want to trade stocks. Also, it is important to choose a regulated and trusted Binary Options Broker. Many new traders get scammed by fake websites or bad companies.
I have tested a lot of different trading platforms and on this page, I share my experience with you. The following list of brokers are reliable and offer stocks for trading Binary Options. IQ Option has the best conditions for stock trading. You can buy and sell stocks per CFD too.
Sign up for a free demo account:
Conclusion on equities as an underlying for binary options
In the area of Binary Options, stock options are a good choice, especially for the entry-level. Most investors are already familiar with equities and it is comparatively easy to find out about the assessment of analysts and experts as to whether prices are likely to rise or fall.
In addition, price movements inequities are on average not as volatile as those in currencies or commodities. This fact also makes trading in stock options somewhat more calculable than is the case with commodities and currencies. For professionals, on the other hand, equities as the underlying instrument of Binary Options could sometimes be a little too “boring”, as share prices sometimes hardly move at all for days on end.
See my other articles about Binary Options:
- 15 Rules for Binay Options – Tips & Tricks
- 5 best Binary Options Broker 2020 – Review & Comparison
- Are Binary Options a gamble?
- Are Binary Options a scam?
- Are Binary Options Robots a Scam? – Honest review
- Best Binary Options App – Comparison & Review
- Binary Option Markets
- Binary Options – Call and Put
- Binary Options – Range Options – Boundary Options
- Binary Options – Touch Options
- Binary Options 60 seconds Trading Strategy & Tips
- Binary Options Bollinger Bands Strategy
- Binary Options commodities trading
- Binary Options demo account – Recommended For Beginners
- Binary Options Money Management Strategy
- Binary Options News Trading
- Binary Options regulation – Why is it important?
- Binary Options review – Critic and warning
- Binary Options RSI Strategy
- Binary Options trend following strategy
- Binary Options volatility strategy
- Binary Options vs. CFD Trading – Which one is better?
- Binary Options vs. classic options
- Binary Options vs. Forex Trading – Which one is better?
- Chart analysis for Binary Options
- Forex Trading with Binary Options
- Hedging Binary Options: Can You Hedge Against Losses?
- How risky are binary options?
- How to avoid Binary Options Scam Brokers
- How to trade Binary Options – Trading Tutorial
- How to Trade Stocks with Binary Options – Tutorial
- Is Binary Options Trading safe? – Consumer protection
- Learn to read Binary Options Candle Sticks
- Trade Binary Options with MetaTrader
- Trade Pivot Points with Binary Options
- Warning about Binary Options – A form of betting
- What are Binary Options?
- Why Binary Options Signals are a scam