Introduction to Binary Options

What is Binary Options Trading?

Binary options is a simple way to trade price fluctuations in global markets. Options trading is tricky but extremely simple if understood perfectly. In simple terms, it involves wagering correctly on the market price at the time of expiry and earning a percent of your investment on that trade.
Simple isn’t it? But that’s not all; one must fully understand the risks. This is a very risky enterprise as a trader can lose his or her investment within minutes following a wrong wager. This entails that in order to limit the risk of losing; one must ensure that each decision is backed by facts and figures and not by gambling on the finish price at the time of expiry.

Binary options

 

History of Binary Options trading

Binary options trading has been in existence for over 30 years but it only became a popular trading method in 2008. Before 1970’s, binary options were only available in closed markets as a small component of trading platforms. This is vastly different from modern binary options as they are traded on a global level. Several changes have been made to facilitate trading binary options on a large scale by making Binary trading much easier for institutions and traders. It seems that binary options are always evolving and innovations are frequently being presented to traders.

 

Regulation

Brokers offering  trading services are regulated by laws put up by regulatory bodies to ensure fair play by the brokers and to protect the traders. The most common of this regulatory body is CySEC. However, the jurisdiction of CySEC regulation does not cover US citizen. Hence the reason CySEC regulated brokers do not accept US trader. Only SEC or CFTC regulated brokers are enabled to solicit US traders for membership.These brokers make their money from the percentage discrepancy between what they pay out on winning trades and what they collect from losing trades.

Starting in 2008, some options exchanges such as the Chicago Board Options Exchange (CBOE) began listing binary options for U.S. residents. The SEC regulates the CBOE, which offers investors increased protection.  Nadex is one of the binary options exchange in the U.S.under the regulation of  CFTC. Nadex offers binary options to US citizen.

 

Advantages of trading Binary Options

The major advantage of is that the risk and reward are known. Profit is not dependent on the degree to which the market  moves in favor of the trader. There are only two outcomes: win a fixed amount or lose a fixed amount. Also, there are generally no fees, such as commissions, with these trading instruments although this is not a rule with all brokers. The options are simple to use, and the only decision for a trader to make is  to decide if the price of the  underlying asset is  within a given time. A final benefit is that a trader is presented with a wide range of assets to trade globally.

 

Disadvantages of trading Binary Options

The major disadvantage of binary options especially with the High-low option is that the reward is always less than the risk.  Another disadvantage is that there are a lot of unregulated brokers out there and even while brokers often use a large external source for their quotes, traders may still find themselves susceptible to unscrupulous practices of especially unregulated brokers.

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