Binary options are commonly used by many to leverage their income, yet many still don’t completely understand what binary options are. In the following lines I will try to explain what they are and what it’s all about, how binaries became such a hit and why they continue to attract so many new trades daily.
Let’s start from the beginning.
Binary options were presented to the world as a new form of trading in 2008 with the approval of the Chicago Board Options Exchange. This recognition came a short time after it was first suggested that binaries be recognised as legal for trading by the Option Clearing Corporation (OCC) in 2007. The truth is binary options have been around for many years. In fact they were first used in the 1970’s and were known up until 2008 as OTC option (Over The Counter). These options were traded in a traditional way and involved having to physically go to a broker to deal in these options. Well, times have changed and new technology brought us a completely new form of trading which is now known as binary options trading. This was the first time a trading platform which is fully web-based was presented to the world, meaning no software downloading is needed. The ease of use and understanding are what made binary trading such a big hit.
Also known as all or nothing options or exotic options, binaries are financial contracts which can be purchased on almost any financial asset; Stock, Commodities, Currency-Pair and Indices are all tradeable with binaries. When trading binaries you are not buying the actual asset but rather an option on the asset price direction within a predefined period of time, known as the options expiry time. Once the option expires you will either stay in-the-money or out-of-the-money and that’s exactly why they are called binary – or all or nothing – options.
How does it work?
Traders choose a tradable asset and predict its price direction; if a trader predicts the assets price will rise within the next few minutes he will purchase a Call option and if he predict the price will fall he will purchase a Put option. In both cases a correct prediction will qualify the trader with an amazing profit which ranges between 65% – 95%, so is you invest £100 you will end having as much as £195 within minutes from initial investment. If the prediction is incorrect then the trader will have only lost his initial investment.
Predicting an asset’s price direction seems an easy task; there are only two options; up or down, but when it comes to risking money it is always best to take advise from experienced traders who recommend the use of several binary options strategies in order to improve the chances of ending in-the-money. There are several strategies available on the net. The most important thing is to first realize that binary trading is not a game and that successful trading in the long term involves learning and adopting several trading strategies. As with everything, devising a plan for your investments will give you a much better chance than investing just on rumours or your gut feeling.