One of the most rewarding trading mechanisms available in finance, a binary option offers payoffs as a fixed amount of your investment or none at all. Binary options allow you to bid on the rise or fall of any financial product or commodity within a certain period of time.
“In return, you can receive a payoff structured to recompense a fixed amount in case your option reaches the expiry date,” report trading specialists. “On the other hand, if the option expires outside the specified share price and agreed binary payoff, you will get nothing as compensation.”
In essence, this option does not require you to trade on the basis of a fixed amount invested by you but on the rise or fall of the asset traded. This duality of outcomes, where you get ‘all-or-nothing’ is where such options get the tag of being ‘binary’ in nature. Therefore, the potential for return is based on the change in the value of the option.
Brief History of Binary Trading
Binaries have been available for quite some time now. Initially a part of a more complex trading system and traded directly between the issuer and the buyer, currently binaries are enjoying a comeback of sorts as dependable trading instruments by which investors can make the most of the assets that rise and fall frequently.
It was in 2008 when binary option platforms really began to get people’s attention. Most of the platforms began offering traded and exchanged binaries and by 2012 there were about 100 trading platforms that were listed as viable operating platforms each offer around 125 underlying assets that you can trade in.
How to Trade Binary Options
Although most binaries offer great opportunity for profit on the asset traded, you need to be very careful in your choice of the type of asset you trade in. It is best if you choose an asset that you understand. Picking an asset without knowledge is a sure-fire way to risk losing your speculation amount. If you believe that the market will rise, you can ‘purchase a call.’ Similarly, if you think the market will fall, you should ‘buy a put.’ However, once you place your put or call option you cannot back down from it. Therefore you should choose your assets wisely.
Up until mid 2012 Binary Trading Platforms were mostly unregulated and the transactions were not monitored by any third party as such. However, in May 2012 Cyprus Security and Exchange Commission (CySEC) classified binary options as financial instruments and placed certain regulations and restrictions on trading them. According to this regulation a platform is required to obtain Category 3 investment service license within six months of the startup.
How Trading Platforms Function
Trading platforms usually do not charge a fee for trading in binaries. They actually make a profit when you lose your investment.Their profits are generally based on the difference between the options that expire ‘in the money’ and ‘out of the money.’ If your speculation on an asset is correct you will be rewarded with the payback that the platform has on offer, but if you are wrong the brokerage platform will get all the money you invested on the asset.
Keep in mind that trading expiry terms can be very short (some lasting for just a minute). And you have to be pretty sure that the asset will move up or down during that period to profit from it.
To understand more and even benefit from a free consultation from The Binary Options Experts team, visit: www.binaryoptionsexperts.com . Also find out how to make money from their affiliate program at: http://www.binaryoptionsexperts.com/affiliate where experts are available to help.
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