Understanding Binary Options Trading
A binary means ‘two outcomes’, which can either be a win or a loss. In the context of binary options trading, there are two types of outcomes that can quantify in assets or money.
When the outcome is in monetary terms, the result can be “with money” if the prediction is correct or “without money” if it is incorrect. On the other hand, asset-based binary options have “with asset or “without asset” outcomes.
Consequently, binary options trading is one of the simplest trading options for financial instruments.
Controversies Against Binary Options Trading
Before 2008, binary options trading was unregulated, and unscrupulous brokers created market platforms designed as gambling sites. With an unfair house advantage and insider manipulation of outcomes, investors incurred massive losses.
The US Securities and Exchange Commission (SEC) established ethical practices in binary options trading brokerage platforms to remedy the situation. The aim was to restore investor confidence in financial markets and to protect consumers.
Following the rectification of the lacuna in regulation, the American Stock Exchange (AMEX), currently, the NYSE, and the Chicago Board Options Exchange (CBOE) started offering binary options trading marking a turning point for the market.
Subsequently, other binary options trading platforms such as NADEX were established. NADEX offers binary trading options for select commodities, forex, and stocks allowing investors to maximize their wealth.
Currently, binary options trading brokers are prohibited from soliciting or undertaking any business in the US without the US SEC approval.
In other jurisdictions such as the European Union, the European Securities and Markets Authority (ESMA) prohibits any binary options trading. The situation is the same in leading financial markets such as Australia, Canada, and Japan, where regulators deem binary options as gambling with low Return to Player rates (RTP) of as low as 54.5% as per an observation from Gordon Pape, a Forbes.com contributor. In the UK, the Financial Conduct Authority (FCA) has not approved binary options trading.
International Binary Options Trading Platforms
Besides NADEX, authorized in the US, self-governing financial havens such as the Cayman Islands, Saint Vincent and Grenadines, Vanuatu, Seychelles, Saint Kitts, and Nevis, and the Marshall Islands have accredited binary options trading platforms that are accessible globally. Australia and Japan have also stepped up and are allowing brokers to conduct ethical trade in compliance with local directives.
Debunking The Myths Of Binary Options Trading
Critics usually equate binary options trading to gambling because of the high risks. However, the financial market is generally risky, and prices are always volatile depending on the prevailing or expected circumstances.
Moreover, unlike gambling, the financial instruments in binary options are determined by external market forces, which curtail the broker’s advantage.
Unpacking Binary Option Trading
In the US, upon signing up on a binary options trading platform, an investor can stake in a demo account or real stake money ranging between 0 and $100. The platform allows you to speculate and stake on the price fluctuation in a defined period such as 30 minutes. If the prediction is correct, there is a reward as well as reimbursement of the initial stake. On the other hand, when the prediction is incorrect, the reward and the stake are lost.
However, non-US binary options trading brokers have a customized reward and stake system where the stake range is flexible. Sometimes when the outcome is incorrect, an investor can still end up with a reward that is less than the stake. For instance, if an investor hedges $100 on the price of bitcoin surging to $45,890 in 5 hours and the price crashes to $30,000 in the same timeframe, the broker can reward the investor $20.
There are two types of binary options trading which are the one-touch and the range. A one-touch option pays out when the strike value is breached within the time frame regardless of any further fluctuation. On the other hand, a range only pays when the strike price is sustained to the close of the contract.
Some brokers, like Binary.com, offer third binary options trading for short selling to hedge against losses in a bear market.
Selecting The Best Broker
When selecting the best binary options trading broker, transparency, trading terms and conditions, security, regulation, and customer service responsiveness are essential components.
Additionally, it is essential to consider platforms with real-time charting and analytical tools that enable traders to make informed investments decisions.
Some of the leading binary option trading brokers to consider are:
- Close Option
- Pocket Option
Binary trading options is simple and entails signing up on a market platform, depositing a stake, placing a call order, and waiting for a favourable outcome.