Binary Options is a market which is growing exponentially.
It has grown in popularity among private and retail traders and in the past few years, the interest for Binary Options trading has even surpassed the more traditional Forex Spot market.
If you take a look at Google Trends and Searches, you will notice that suddenly Binary Options seem to be the new shiny object among traders.
This has been fuelled by colossal marketing campaigns, but there is another reason. More and more traders discovered that you could make money, by simply clicking one of two buttons: PUT or CALL.
A Short History of Binary Options
Are Binary Options this simple? What is the history behind Binary Options trading? Some people consider this a form of gambling and others recognize in them the traditional options trading, practised for decades by big investment firms and banks. Options even go as far back as ancient Greece. Some form of “optional contracts” where known among agricultural traders and investors. Sellers of olive oil would sell crops with a structured contract that resembles modern options trading. The big change came with the Internet and Online trading platforms. If we go back 10 or 20 years, only big institutions could afford to setup a structured options contract. This was a transaction between closed doors and with lots of lawyers sitting around the table. Nowadays? Every trader from a beginner to an experienced investor can setup an account and hit the Binary Options market.
Binary Options are called “Binary” because only one of two possible outcomes is possible: either you win or you lose. Simple as that. Binary Options are trading instruments based on underlying assets. They are based on Commodities, Stocks, Indices, Bonds, Interest rates, Foreign exchange currencies or some other, more exotic, financial asset classes. Since the advent of online trading, many brokers have opened shop and offered all kinds of varieties on the same basic options game. We will explain some of the existing and more popular Binary Options forms.
Preparing Yourself to Trade
First things first. In order to start Binary Options Trading, you will need an account with a Binary Options brokerage firm. They will offer you the two most important aspects of this new, exciting trading form: access to the financial markets and an electronic trading platform. The price feed you will see comes from the official intermarket and reflects the price of the underlying asset class. If you see, as an example, that the Euro-Dollar currency pair is trading at 1.1218, then that reflects the actual price at the international Spot Forex market.
This is good news for you, the trader, because this ensures transparency and security. There are no “shoddy” price arrangements – only official trading values, that you can check for yourself on renowned sites like Reuters© or Bloomberg©. With this being said, what is the actual next step?
An Example Binary Options Trade
The essential choice comes down to which financial instrument to trade. This could be the stock price of Coca-Cola or BMW or some other known brand. It could also be the price of Gold or Brent Oil or some other commodity. Binary Options trading is based on a certain assumption. You have to figure out where the price will be after a set time period. This is a very unique characteristic of Binary Options: the time aspect. This is called the strike price or expiry time. Unlike other financial markets, your trade has to play out, at the exact moment that the options contract expires. In practical terms this means: you choose a financial instrument and also a certain time period. These could go anywhere from 10 seconds all the way up to 1 year.
Your job as a trader is to figure out if a certain price level will be up or down from the moment you start a trade. This is a classical Binary Options type and is called a High/Low-Option. There are other types of Binary Options, like the One-Touch-Option or different forms of Boundary Options, where you have to decide if the price of a certain asset will remain within the boundaries of a certain price level or will move outside of these boundaries. The possibilities are ever expanding and brokers are coming up with new flavours of the classical Binary Options type. We covered this in a more detail on our page on Binary Option Basics.
A Simple Binary Payoff
The other characteristic that is pretty unique to Binary Options, is the fixed outcome. You either lose the complete trade or you win a very high percentage in relation to your investment. The profits can go anywhere from 75% to 500% per trade. The latter being obviously very rare and more difficult. The nice thing about Binary Options trading is, that you only have to be “right” a fraction of a percentage point in order to make a hefty profit.
With more common trading possibilities, you have to make several points, pips or Dollars, in order to pocket a profit. Your trade loss will also be 100%. With other trading options (like Spot Forex or Shares) you can always “regulate” the loss, by closing the trader earlier or by adding up trades.
The opportunity to exit a binary options trade early means that the trader can garner a profit early without having to wait till expiry. This means that the trader can implement a range of different trading strategies that involve.
A Revolutionary Trading Solution?
In summary, Binary Options is a new form to trade and participate in the international financial markets, with a relative risk and a very low threshold to enter the market and start trading. The market is constantly adding new exciting forms to this “old” but reinvented form of trading. If you want to experience this for yourself, then please feel free to check out our recommended brokers. If you are a complete beginner, then you should sign up to become a member of the club and ensure you receive regular information relating to resources such as educational and training material for Binary Options traders.
Join the Club!
Binary Options are simple enough to learn, but they require proper education and a solid knowledge of the markets. It is not easy to decide if a certain asset will go up or down, before a fixed time period ends. There are all kinds of considerations to be taken into account and you will also need to learn more about how the financial markets work.
If you don’t want to bother with all of these things, but still want to participate in one of the most exciting trading opportunities of the 21st century, then there are other possibilities like Managed Binary Options accounts and Binary Options Trading Signals.
Again, to know the right places to go to for both managed accounts and trading signals is vital if you want to succeed in the market. There are a number of scams on the market who attempt to take advantage of new trader. Therefore, we encourage you to sign up today so that we can keep you informed about all the best services on the market.