By Jean Folger Updated Dec 21, Binary options and day trading are both ways to make or lose money in the financial marketsbut they are different animals. Day trading, on the other hand, is a style of trading in which positions are opened and closed during the same trading session. A day trader's profit or loss depends on a number of factors, including entry price, exit price, and the number of shares, contracts or lots that the trader bought and sold.
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An option is a financial derivative that gives the holder the right, but not the obligation, to either buy or sell a fixed amount of a security or other financial asset at an agreed-upon price the strike price on or before a specified date. A binary option, however, automatically exercises, so the holder does not have the choice to buy or sell the underlying asset.
Binary options are available on a variety of underlying assets, including stocks, commodities, currencies, indices and even events, such as an upcoming Fed Funds Rate, Jobless Claims and Nonfarm Payrolls announcements. If you think yes, you buy the binary option; if you think no; you sell.
The price at which you buy or sell the binary option is not the actual price of gold in this example but a value between zero and The trading range fluctuates throughout the day, but always settles at either if the answer is yesor zero if the answer is no. Binary options traders "gamble" on whether or not an asset's price will be above or below a certain amount at a specified time.
Day traders also attempt to predict price direction, but profits and losses depend on factors like entry price, exit price, size of the trade, and money management techniques. Like binary options traders, day traders can go into a trade knowing the maximum gain or loss by using profit targets and stop losses.
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Day traders, however, can "let their profits run" to take full advantage of large price moves. Of course, day traders could also let their losses get out of control by not using stop losses or by holding onto a trade in the hopes that it will change direction.
Day traders buy and sell a variety of instruments including stocks, currencies, futurescommodities, binary options in both directions and ETFs.