The Basics of Binary Options Trading

Introduction

 

Binary options have are a financial investment which had been around for quite a few years and which has lately become a popular way of investment used by both novice and experienced investors. Trading binaries is technically easy and potentially provides a huge return on investment (ROI) which can be gained within minutes from initial investment. The basics of binary options trading is predicting whether a certain assets price ail either rise or fall within the option trading time. If your prediction is correct you are about to get an average profit of 81% and up to 600% on your initial investment.

 

Binary options history

 

While trading binary options has become so popular in the past few years not many know, but they have actually been around for many years. Binary options were first introduced to the financial world in the 1970’s, they were then called and addressed as over the counter options or in their shorter version OTC options. OTC options were based on the same principal as current binary options, traders could trade the price movement of financial assets without actually buying the stock or commodity. The principal would be buying an option on a financial assets performance. OTC’s as oppose to binary options were traded in longer trading periods (expiry times) and would demand the presence of both a trader and a broker in the same office. Trading in those days was done over the counter.

 

Times have changed and great minds have bought us the internet and many other invention, one of which was digital options or in their current name “binary options”. This new type of option was presented to the world in the early 21st century and was approved for trading by the US Clearing Options Corporate (OCC) by the end of 2007. The Chicago Board Options Exchange followed the OCC’s approval and by the end of 2008 binary options were approved as a legitimate financial trading tool.

 

The journey of binary recognition didn’t stop there. Having been recognized as a financial investment didn’t mean binary options were approved for trading. So in the years to come binary options companies started their unregulated operations meaning trading was legalized but unregulated. While binary options gained world-wide popularity European regulators had decided it’s time to completely legalize and regulate this market. The US government decided to take a different approach and had banned broker who reside outside the US to offer their service to US residents. However I believe it’s only a matter of time until the US government will be forced to change its regulations on this issue.

 

What are binary options?

 

Once we have clarified the story behind binaries it’s time to understand what are binary options and how can one take advantage of this exotic type of investment. Binary options are a financial tool which allows traders to purchase an option on any world-wide financial asset price movement. The option is linked to real live trading performance and the traded can either win or lose. The option is bought with a specific expiry time which will define whether the trader will have stayed in-the-money (profit), at-the-money (no profit, no loss) or out-of-the-money (loss). The trade can only lose or win in accordance to his initial investment. It’s all predefined and known in advance and is also why it’s known as fixed return options.

 

It’s basically a matter of predicting the right price movement and in order to that traders should adopt a binary options strategy which fits their trading nature.

 

Before we go let’s try and emphasize this with an example on “Amazon”. We had searched and followed this stock for some time and are aware that its performance report is about to be published. We believe had analyzed it and as part of our binary options strategy have decided to take a Put binary option for $200 on amazon with an expiry time of 30 minutes. The stock is now traded at 337.15 points. If in 30 minutes the stock’s price will be anywhere under 315.15 we will have ended in the money and will take back home a whopping 81% profit which will bring us back $362 and a profit of $162. If our prediction fails we will be losing 85% of our initial investments we our using a broker which offers a free 15% insurance policy and we will be going home with a loss of $170.

 

Trading binaries is built for risk takers and involves high risks together with a Ludacris profit potential.

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