Today we are going to talk about Digital Options.
Digital options are one of the easiest and potentially profitable tools you can use to create a full time trading business or an extra part time income.
I use digital options as a supplemental part of my business.
Digital options are effectively fixed odds risk and reward trading. They are priced like regular options but have a fixed pay out if you are correct in your call about the market.
When you buy a digital option contract, you are entitled to receive a pay out which is a fixed multiple of the amount you have staked.
Clients trade against a computer and transactions are confirmed instantly.
For Example:
a) You decide, after analysing the Dow Jones index, that in the next few days the Dow Jones will fall and will reach a level lower than 9,200 points (suppose the current level is 9,675)
b) You decide to win $1000 if you are right about the movement of the Dow Jones. You buy a BEAR contract to "Win $1000 if Dow Jones during the next five days will be lower than 10,200 points."
c) The computer system calculates that the cost of the contracts will be $460. If you like the price, you can buy the bet. If you are right about the Dow Jones movement and it is lower than 10,200 points after 5 days, then the contract will expire with a pay out of $1000. Alternatively, if the Dow Jones is higher than 10,200 points, then the contract will expire with a value of zero.
d) You can sell your contract back to the market maker before it expires, if you see the Dow Jones going higher and there is a reducing possibility of winning the trade. Alternatively, the Dow Jones may be falling and the contract is worth more and you simply want to cash in while you are ahead. The present price of the contract, i.e. the amount you will be paid, is recalculated considering the current situation on the markets.
Digital Options are a great way to gain stock market exposure for strictly limited risk. It is a simple method of trading options with many of the benefits.
The Digital Options Trading Plan gives complete details of a simple system that has a remarkable accuracy rate using digital options. Its a bit dated, but still works. But it will only work if you are willing to invest time to master it properly. Its effectiveness has somewhat decreased now that Binary.com have jacked up the commissions but it still works although your edge will be lower and you can always apply it at other binary betting firms. I still sometimes use it to help me predict the market direction but only in conjunction with more advanced strategies to lower the house edge as much as possible
Great Trading and Good Luck.
