How to Get Started With Binary Options and Binary Options Trading.

1. Understand the terminology of options trading. Binary option trading is when a buyer enters into a contract to purchase an underlying asset at a fixed price at a pre-determined time in the future. The owner does not buy the asset itself, rather the option to buy it. The fixed price at which the owner buys or sells at, is known as the strike price. In binary option trading, the potential gain or loss is known at the onset of the contract and it is determined by the amount invested by the owner. So, there are only two possible outcomes: the option expires in-the-money and the owner receives the value of the successful contract; or the option expires out-of-the-money and the owner receives nothing, taking the loss of the price paid.
   
   
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   Investigate the underlying asset. This may or may not be an "asset" in the usual investment sense of the word, but refers to whatever will determine whether or not your contract expires in or out of the money. The contract might look like "Pays $100 if the S&P 500 Index closes 2012 above 2000." Some prediction markets offer contracts based on political, meteorological, or other non-financial topics such as whether or not the Higgs Boson will be observed by the end of 2013. The market value of a binary option is directly related to the probability that it will expire in-the-money, with (usually minor) adjustments to account for other factors, such as the time value of money, taxes, and commissions. The Black-Scholes model for options pricing may apply if its assumptions are valid and the volatility of the underlying asset is known.
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   Decide if the option is overpriced or underpriced enough to act on. If it is underpriced, place an offer to buy; if it is overpriced, sell. The exchange probably won't allow you to make a naked short, but should allow covered shorts, if you have enough cash in your account. In binary options, a covered short is equivalent to buying both an option for "Outcome A" and one for "Not A" whose total value is constant, then selling whichever one you think is overpriced.
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   Monitor your option and the underling asset after purchase. You may choose to hold it until expiry, or sell it to another investor before then.