A binary option also known as ‘digital options’ or ‘fixed return options’ is a financial option offering online traders an opportunity to buy price fluctuations in a several global markets. However, as a binary options trader, you need to understand the risks and the benefits of binary options. These misunderstood instruments are totally different from traditional options and forex trading. Don’t get it mixed up.
But the question is, what exactly is binary options? In this financial option, the payoff you receive is either a fixed amount or you receive nothing at all.
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Binary options explained
Most people get confused when they think of binary-options. Binary is for two choices. Either up or down. Meaning you get a binary when you bet down or up on a product. The binary product could be crude oil, share of a company, stock or gold. Values of binary options don’t stay the same everything, they change because this financial market is controlled by the law of “supply and demand”.
Software for binary options
Professional software are put in place to the work on behalf of the traders. These robots are most common to Binary options beginners. These robots follow a specific algorithm which allows them to always analyze the markets and be able to take the right position at the right time.
The law of the binary options market
Understanding the law of the market means understanding the offer, the demand and how the prices come about. For example, the more expensive a product is, the more expensive it is.
Demand: Imagine you want to go to ‘Justin Bieber’s concert’, think of how much a ticket will cost you. Since Justin is one of the most popular musicians across the globe, the ticket will be more expensive because he is in high demand.
Offer: Since Justine is in high demand, the offer is limited because he can only hold just a few concerts per year. The supply is limited and the strong demand makes the price to increase.
Price: The price is determined by the number of followers Justin has on social media and how much his net worth is or how many digital sales or physical copies he sold. Therefore, the price is determined by supply and demand.
The same example we have used above also applies to crude oil. Oil is a scarce and limited resource which makes it to be more expensive and in high demand. Come think of it, most scarce products are the most expensive ones. Products or resources that are in abundant are cheap.
Reasons people trade binary options
Binary options are easier to trade than the stock market. It is simple to trade from a low amount as little as $100 whereas on the stock market, you can start from at least $10 000 to be able to make money without having to pay too much for the bank commissions.
For people who are interested in binary options, there are online training guides and video tutorials designed to help beginners. The guides cover topics such as “how to speculate Binary options and how to predict if the options will go down or up.
Binary options history
Binary options history begins with the development of many financial products that are created to attract people to investments by simplifying the trading process and the decision making.
The exotic options called binary options are traded regularly for years in other forms of trading but made available to the public and through brokers only a few years ago.
The following paragraphs provide you some understanding of the binary options history and can be used to broaden your perspective about binary options.
Binary options history – regulation
The beginning of the short history was in 2007 when the Options Clearing Corporation proposed to regulate binary options trading. The proposal was sent to the Securities and Exchange Commission which in turn approved and regulated binary options trading in 2008.
Binary options history – binary options products introduction
May 2008 was the first introduction of regulated binary options by the American Stock Exchange ( AMEX ). The binary options products they launched were European style cash-or-nothing options which means that these were binary options with a monthly expiry and about 3.5 weeks of available trading. The prices were calculated using the Black-Scholes formula and were very static in nature.
In June 2008, the Chicago Board Options Exchange ( CBOE ) also introduced binary options as part of their offering to financial institutions and companies. Both AMEX and CBOE issued binary options with a value which was between 0$ to 1$ with a multiplier of 100 as the base binary options. Getting quotes on binary options was a complex matter and could take even a day and therefore in order to be profitable to the issuers of the options, they only accepted big deals of large amounts. It became clear that this fascinating new tool that was used by the professionals needs to evolve and to be introduced to the public as a standard regulated simple way to trade.
Binary options history – introducing binary options to the public
2009 was the year when the desired development occurred in. The North American Derivatives Exchange ( NADEX ) introduced binary options tools that enabled the continuous pricing of the options and the automatic selling of over the counter binary options. This major development was available through NADEX’s on-line platform. Not long after, many broker companies started to sell over the counter binary options with continuous pricing through automatic on-line platforms and the binary options market evolved to where it is now with dozens of brokers and millions of traders creating a volume of hundreds of billions of dollars a month.
Advantages of binary options
Just like forex trading, binary options also has some advantages:
- Unlike other form of online trading and investing, with Binary, you don’t have to know about it
- Most binary options brokers offer free books, guides and training
- You don’t need to have lots of money to start. You can start with as little as $100 or $200 for some brokers
- To invest in stock, you need to have at least a minimum of $1 000 to avoid losing your money from fee charges
- With binary options, you don’t have to pay any fees. You don’t pay the banker, the broker or anyone
- Everything is done through the internet. There’s no need for you to go to a physical store
Is it legal to speculate on binary options?
One of the most asked questions is “is binary options” legal? Well, in some countries such as France, binary-options is illegal. Most binary options brokers that you come across with on Google are operating illegally. However, binary has become legal in some parts of the world and are regulated. The regulators make sure that you receive quality services and you are safe online.
Is it easy to withdraw funds? How long does it take?
Withdrawing funds from some brokers is very easily. It usually takes about 7 working days for you to receive your money, but some takes 48 hours. There are also some reputable online binary option trading platforms where your money is secured. These platforms come with customer service features such as Live Chat, fast Email response, Skype and many more.
How to deposit funds on my account?
Depositing funds into your account is instant. However, as part of security reasons, you will be required to verify your account by supplying a copy of your password or Identity Document (ID).
Remember to be cautious. If you are ready to trade binary options, it is recommended that you start with small deposits to see if you are able to do binary options or not. To be a good trader, it takes a lot of research and discipline.