What is the difference between Call and Put options, and what to choose? If you are a Binary Options trader, you must have seen the buttons that give you the options to open a “Call” and “Put” trade. But what is the difference between a Call option vs. Put option? To answer this question, we must first understand what each of them means and why there are two different choices available.
Call Option vs. Put Option
A call option is a financial contract that gives the buyer the right, however not the obligation, to buy an asset (stock, bond, commodity, etc.) at an agreed price within the specified time. This right to buy is a strategic advantage, especially when the investor anticipates an increase in the value of the underlying asset. The buyer of a call option aims to benefit from potential price appreciation while limiting potential losses to the premium paid for the option.
A put option, on the other hand, grants the holder the right, yet not the obligation, to sell an underlying asset at a predetermined strike price before or on a specified expiration date. Put options are typically employed as a risk management tool, allowing investors to safeguard their portfolios against potential downward market movements. The holder can sell at a higher price that he or she paid for the purchase, which would let him benefit from the price decrease.
Call and Put on IQ Option
When you start trading with various online brokers, you will see different variations of the Call and Put buttons. To better understand what they mean, let’s look at an example in the IQ Option traderoom.
When you trade in the IQ Option app on your phone, you are likely to see Call and Put buttons when trading options.
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The “Put” button is used to open a trade with a prediction that the price of the underlying asset will decrease. So, if a trader expects the price to fall, they may click this button and, if the prediction is true, they will profit.
If you want to learn more about Binary Options trading, please read more in the article: How to Trade Binary Options for Beginners. If you would like to download the IQ Option app, click here.
Call and Put or Higher and Lower?
So far, we have established the meaning of the Call option vs. Put option. But what about other variations of the two buttons?
For example, if you access the IQ Option platform from your PC, the same buttons will be called Higher and Lower instead. Is there any difference in the function of these buttons? The answer is no.
The definition stays the same: use the “Higher” button for a prediction of price growth and “Lower” for a prediction of a decrease.
You will see other variations on other instruments, as well, for instance, on CFD assets like Forex, stocks, crypto currencies or commodities will have you choose between “Buy” and “Sell”. If you would like to learn more about trading CFD assets, check the article: How to Trade CFDs on Stocks at IQ Option.
