Interest Rate Option

An interest rate option provides a way to manage interest rate risk. If the interest rate goes against you, then the option will compensate. If the interest rate goes in your favor, then the option expires worthless. The option makes payment to compensate for a change.

Binary Options

Not as complex as the regular options, but included here because of the name, binary options are really just a form of betting. There are two outcomes to a binary option, either you win and get paid a set amount, or you lose and get nothing.

Binary options only require that you have an opinion of whether the market is going up or down, and the degree does not count. Typically they are traded on a very short time span, sometimes just hours, and usually not more than a day or two.

The dealer makes an assessment of the likelihood of the index or major stock going up or down, and sets the payouts appropriately. You place your bet, and either you get paid a set amount, or get nothing. The stakes for betting upwards and betting downwards total to more than the payout, which is where the dealer makes his profit.

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