Basics of Black Scholes model

Fischer Black

Black Scholes is the basis for all binary options trading, online or off. Once you understand the formula for calculating the prices and closing values of the traded option, it becomes far more clear how to use this information for realizing profit and minimizing risk and loss. Although the formula does not allow for certain gains, it does mitigate the chances of loss and also helps traders "wrap their heads around" the mechanics of the market so that they can use that information to yield a profit or hedge losses. Unlike stocks, bonds, currency and all other forms of trading, binary trading incorporates all those instruments into a very simple YES OR NO type of decision that the trader can then decide if they want to take or not. With the proper emotional conditioning and expanded understanding of the markets' behavior, a trader can double, triple or even greater expand his profits.

Myron Scholes

One of the main aspects required by the Black Scholes Valuation Model is that they must have "frictionless" meaning they do not incur any fees, as well as being one that does not offer dividend and that can be sold fractionally. The process of purchasing such an share would make it very difficult to repeat as who buys "half" a share or any portion of a share other than a whole, and in addition, who will sell you and buy from your shares without charging as how would they afford their own costs. Binary options solve all these issues by combining all of them into a nice tidy unit that they sell as a binary option. While they may loose out on places that otherwise earn them fees, they pass on the savings to the traders, whom they make money from on the difference of profit vs loss.