Binary options have become well-known all around the world with increasing interest in both developing and well established countries. So while it seems that everybody’s talking about them, many still don’t know exactly what are binary options.
Binary options were first launched as an online financial development at the beginning of the 21st century. The idea was first brought up for approval by the US Options Clearing Corporation (OCC) in 2007 and was approved by the Chicago Board Options Exchange (CBOE) in 2008. Since then binaries have become more and more popular, penetrating the financial market world-wide.
The truth is that binaries first appeared on the scene way earlier.They were first introduced to the financial arena in 1973 as OTC options (Over the Counter). These options were popular for years but trading required that traders physically approach a brokerage firm, i.e. go to the broker’s office and take out a short term option. As time went by and new developments and inventions entered the financial arena,the idea of having a digital option instead of the OTC option came to life.
So in 2008 binary options entered our lives and ever since they have become increasingly popular. At first binary options were considered a ludicrous idea and were regarded as many asonline gambling, similar to putting your money on the roulette table. As time went by, binary options started gaining approval by several governments which decided to legalize the use of binaries as a financial investment. Most binary options tradersreside within the borders of Europe which has recognised this type of investment of being legally viable. The case in the United States is totally different as the federal law has recognized binaries as an online gaming. However, it is expected that this issue will soon be resolved following new legalization of online gaming across the US.
So how does this work?
Binary means 0-1 or all nothing and that’s exactly how a binary option works. You can either win or lose, i.e. make a huge profit which can reach 95%, or lose all your initial investment in a matter of minutes. When coming to trade, investors should learn about the using a binary options strategy and only then should they decide on the suitable option in accordance to their prediction. Traders can either choose a Call or Put option; Call if you believe the traded assets price will rise within the option’s expiry time or Put if you believe the chosen option’s price will decline within its expiry time. Profits are calculated in advance so that the trader knows the potential profit and loss in advance, before the actual trade.
Let us emphasize how this works with a classic binary options contract on “Dell”; we have just heard that Dell is about to sign a big contract and so are predicting a rise in the stock’s price. We go to the charts and check the stock’s performance. In accordance to our money management strategy we decide to invest $200 dollar on a 15 minute Call option which projects a potential 81% profit. If the price within 15 minutes rises by even one micro pips we will end up in the money i.e. we will have made $162, whereas if our prediction fails, we will lose only $200.
To conclude, binary options are a rather new type of financial trading tool which can potentially provide huge profits with a predefined risk; the options are linked to live financial markets performance with high speed expiry time. That in a nut shell is what binary options are all about.