| Updated: October 30, 2024You will learn about the following concepts
- A bit more about expiration rate
- Why is it important?
It is now time to talk more about every single one of the terms we have briefly mentioned in the previous article. To become an accomplished trader, you must be aware of every single term. This way you will gain enough confidence that your knowledge will not just generate profits for you, but is superior to the knowledge of other traders. This will also allow you to take advantage of their mistakes.
Binary options are a plain and effective method of investment, which can be quite profitable, if you know how to play them. You will know how to generate huge profits without making any serious efforts. The first term that we will discuss is the expiration rate.
Get to know the expiration rate better
The market price of the underlying asset at the exact time when the respective option will expire is what binary options expiration rate represents. As you have already been through the previous articles making yourself familiar with the mechanism of binary options trading, the expiration rate is considered to be the determining factor that will help you find out whether your bid is successful or not, and whether you are in-the-money or out-of-the-money (respectively, winning or losing).
The trader will be paid a predetermined, fixed amount, or maybe nothing upon expiration, if the movement of the asset’s price is the opposite to their suggestion. The very fact that the sum is a fixed amount and is already known by the investor means only one thing – you will be able to manage your risk, which is a really great advantage compared to other trading mechanisms you can use.
In order to clarify, here is an example. Let us assume you want to trade the Dow Industrial Average. The binary options expiration rate is definitely a critical factor here in case you want to achieve success. If Dow’s value is 12,1314.4 and there is a 5-hour expiration rate, you have to analyze the recent price movements of the index and make your suggestion based on them. If you see that the index has been declining recently from a prominent high of 12,1514.4, then you might want to execute a call option. Since the current price is 12,1314.4 and the daily high was the previously mentioned one, the investor may suppose that the current value is fairly low and the price is likely to surge above the current level.
The expiration rate plays a significant role in the binary options trading outcome as it is a key factor of determining the final result of your bid. Remember, take a good look and decide what the movement of the asset during your expiration rate will be. This is a key decision, so spare no effort and time in order to make it right.
Importance of Expiration Rate
Expiration rate will influence your payout. It is so, because it influences you, the trader, urging you to select whether the price will fall (and place a put option) or whether it will rise (and place a call option). Once you make a correct projection of the movement, then your option becomes “in-the-money”, while you can enjoy the gains it brought you.
When placing a bid, there are a couple of important things you have to keep a close eye on. For example, you should always pay attention to the expiration rates listed on past expires of the asset you have chosen. This will help you analyze past movement and predict more accurately where the price might go next.