History of Binary Options Trading
Binary options also commonly known as all-or-nothing options, digital options (forex/interest rate markets), and Fixed Return Options (FROs) (American Stock Exchange). Binary Option is a popular financial trading instrument in Europe, but it is a fairly new concept in US. Before 2008, only those few investors who had hired a special broker and paid up front fees are allowed to buy binary options in the option exchange. The Options Clearing Corporation only open the gate for more investors to access them in the beginning of 2008. The American Stock Exchange then make it easy for retail investors to trade binary options online.
Due to its unique characteristic of fixed odds, fixed risks and fixed return, coupled with the proliferation of the brokers to offer direct binary options trading online to all retail investors, binary options trading has skyrocket and expanded exponentially today. Traders are now able to trade binary options from virtually anywhere, 24 hours a day, 6 days a week, just by completing their trading online.
Binary Option Basics
A Binary Option, or exotic options, is a simple investment compared to other financial investments. It is binary in natural as there are only two possible outcomes before you trade. You will either receive a predetermined payout if your binary options are in-the-money at expiry date or lose all the initial investment if your option is out-of-money at expiry.
Binary options are usually European style options and there are two main types of binary options, such as cash-or-nothing and the asset-or-nothing binary options. The cash-or-nothing binary option will pay some fixed amount of cash while the asset-or-nothing will pay the value of the underlying security, if the option expires in-the-money.
In option trading, you never actually buy underlying asset, which could be the stock, commodity, currency pair, or even entire index. There is no fix price for the binary options. You decide the amount of money you wants to invests in the option. If you expect the underlying asset will expire above the strike price (in-the-money) in a predetermined time, you will want a "call" option. On the other hand, if you think it will expire below the strike price (out-of-the-money), you will want a "put" option. The predetermined time can be any time interval like one week, one day, one hour or even 5 minutes.
You will be paid an investment return of around 65-81% if your binary option is "in the money". However you will receive nothing, even your initial invested money, if your underlying asset expires "out of the money" .
Example of a Binary Options Trade
The example below shows the details of a typical binary options trading:
For example, if you purchase a binary cash-or-nothing call option on "A" stock with a strike price of $50 within 1 hour with a binary payoff of $180. Now if the price of the share "A" goes above the $50 level at the end of the maturity time, that is, 1 hour, the option would be treated as "in-the-money", and you will receive $180. However if the price of the share "A" is trading below $50 level, the trade would be termed as "out-of-the-money" and there would be no payout.
The risk involved in this trade is known. The Gross Profit / Loss follows the ‘all or nothing’ principle.
The example is further explained below:
If you buy a "Call Option"
Call Binary Options For A Share with 80% Return:
You invest : $100
Value of A Share at Strike Point: $50
2 Possible Outcomes:In-the-money:
Value of A at Expiration > $50 - You get : $180
Out-of-the-money: Value of A at Expiration < $50 - You get : $0
Likewise if you purchase a "Put Option"
Put Binary Options For A Share with 80% Return:
Amount invested: $100
Value of ABC at Strike Point: $50
2 Possible Outcomes:In-the-money:
Value of A at Expiration < $50 - You get : $180Out-of-the-money:
Value of A at Expiration > $50 - You get: $0
Unique Advantages of Trading Binary Options
Due to its nature of binary, binary option is a simple investment compare to other investment instrument. The key advantage of trading binary option is that you know how much will be make and how much will be lost just before you enter a position.
The time involve in researching a particular underlying asset is much lesser, as you only needs to predict the trend of a particular stock, currency pair, commodity or index within a given time frame. No more agonizing over long term trends prediction and in-depth financial analysis. Trading online have been greatly simplified for on the go investor as most of the trades can be executed within 3 mouse clicks.
The risk associated with binary options trading is limited compare to other trading tools and is known to the trader upfront. That says you will know the amount of risk before you even invest your money to buy it. The maximum money that you can lose is LIMITED to the amount of money that you use to purchase the binary option, if the trade is not favour you.
How To Get Started To Trade Binary Options?
Due to it simplicity and ability to generate a predetermined greater return in short period of time with a limited risk, binary options trading has becomes a very attractive investment tool among many savvy investors in today financial world, and it is set to getting more and more popular.
If you are interested in binary options trading, you can sign up a free trading account from an online binary option broker.
There are plenty of binary trading platforms available on the market now.
The most recommended and reputable one is "24 Binary Trading Option Platform" which offers 85-310% of ROI.
Check it out now.
