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Over recent years, binary options trading has become an accepted form of investment in the financial markets. The question is how and the answer is seemingly shrouded in mystery.

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As you can see from the calculations above, the risk you take is limited to the premium paid on the option. You cannot lose more than your stake. Unlike in spot forex tradingwhere your losses can get bigger the further the trade goes against you which is why using stops are crucialthe risk in binary options trading is absolutely limited.

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Let us take them one after the other. Expiry times can be as low as 5 minutes.

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The Bottom Line Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That's why they're called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time? Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade.

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Smart traders do it every day, executing binaries in everything from oil and gold to stocks and currency pairs. The question is, is it as easy to make money as a lot of websites claim? A casual look at a handful of binary options brokers leaves you with the impression that all you need to do to turn a profit is to create an account. Moreover, you can supposedly do so over and over throughout the day.

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