Binary Options are derivative instruments used to make profits via online negotiations. They are called derivatives since their value depends on the value of other financial instruments which, in the case of binary options, includes shares, indices, currency pairs and commodities.
The negotiating takes place within trading platforms that allow the trader to; choose the preferred asset (eg. A particular currency pair), select an expiry time for the trade (eg. 5 minutes) and then place the order of purchase.
When you “purchase” a binary option on a share, it doesn’t involve the purchase of a share title and becoming part of a company. Purchasing a binary option on a share simply means predicting a rise or fall in the price of the title, within the chosen timeframe, based on the position taken.
For example, if you predict that Google will be worth more than the current price after 5 minutes, you would take a “Call” option. If, at the expiry of the option, there is indeed an increase in the price from the price at the moment of purchase, then the transaction has been profitable and we can say that it finished “in the money”.
If, on the contrary, you predict that Google will be worth less than the current price in the next 5 minutes, then you would purchase a “Put” option. Should the title indeed drop in value from the purchase price at the end of the 5 minutes, this too has been a profitable transaction and would also be said to have finished “in the money”.
Obviously, in the case of an incorrect prediction, we would finish “out of the money” and lose what we had invested in that single transaction, that is, the amount used to purchase the binary option.
Types Of Binary Options
So, as we have seen, we can earn with binary options online and this is done using negotiation software. To make profits we can proceed in different ways, because although Call and Put options were mentioned in the introduction, it must be pointed out that these are the “classic” binary option choices.
There are in fact different types available to you, as you will see below:
Call/Put Binary Options: The trader/investor predicts whether the price of an asset will rise or fall at the chosen expiry time.
Range Binary Options: The trader/investor predicts whether the price of an asset will remain within a maximum and minimum range determined at the time the trade is taken.
Touch/No Touch Binary Options: The trader/investor predicts whether the price of the asset will “touch” or “not touch” a certain price within the determined timeframe.
One Touch Binary Options: The trader/investor predicts whether the underlying asset chosen will touch, just once, a determined price or range during the trade timeframe.
60 Second Binary Options (or other timeframes): The trader/investor simply predicts the rise or fall of an asset’s price within a one minute timeframe (or other time period chosen).
30 Second Binary Options: This is a new speed record in expiry time for binary options.
The History Of Binary Options
We have all heard or read about “Binary Options” or “Trading Binary Options” at least once and this has only happened in the last few years. Why? The explanation is simple: Binary Options have only been in circulation in the last few years and it is commonplace to focus on unfamiliar words and terminology just because they are new, or relatively new. In this article we share with you the history of binary options, a new instrument for negotiating online and earning from home.
The first version of a platform for the trading of binary options was developed in 1973 by the Chicago Board Of Trade (CBOT). It was presented to its investors, but did not have the success that it was to have 35 years later, in 2008, through the North American Derivatives Exchange (NADEX).
The history of binary options is actually considered to be that which developed from the year 2008, the year in which the US Securities and Exchange Commission approved the instrument of binary options as a legitimate method of investment. This change was due to the Options Clearing Corporation, which requested a revision of the rules that were in place at the time. From that moment, another facet of online trading took off, that together with CFDs allows traders to comfortably profit from home without the need to actually possess any titles.
Binary Options vs Traditional Options
Binary Options gained rapid success due the fact that they are easier to use and understand than “traditional” options. Traditional options represented an effective way of protecting positions and portfolios from unexpected collapses and they were also excellent speculative instruments. Where they proved difficult to understand was in the dynamics of online negotiating. The right product was just a step away: the binary option. With binary options it is only necessary to analyse a direction and the result is simply positive or negative.
Profits At A Fixed Percentage
Binary options were first developed in the US and have further evolved in Europe as they have also done in many other parts of the world. The simplicity and intuitiveness of the platforms, together with the dynamics of negotiation were two elements that could not possibily leave the marketplace unenthusiastic. Profits at a fixed percentage, regardless by “how much” your prediction was correct, is one of the most favourable things about trading binary options. Even if your trade ends up being only one point “in the money”, binary options recognises your correct analysis with a fixed profit that the trader is aware of before taking the position. This way it is possibile to know the potential earnings (the percentage of) and also how much may be potentially lost (which is the amount invested for that one trade).
Present and Future
Binary options do not have much of a history, but they do have a strong “present” and will certainly have a great future; most likely with more competition and more rules put in place by the brokers, which can only be good news for their clients. For now, we can say that the best binary option brokers, like those that we will be recommending, are regulated by important regulatory authorities who maintain close scrutiny over the quality and security of the registered companies.