Thursday, 3 December 2015

A Brief History & Overview of Binary Options Trading

Binary options has become one of the most preferred options amongst traders, considered very useful for a hedging and speculation tool. You might think that binary options are fairly new strategies, but they've been traded for way more than ten years. The most common way they have been traded was over the counter generally amongst two institutional investors, commonly hedge funds and investment banking prop desks. Retail traders were given the right to trade binary options in the year of 2008, and the reputation of this asset class has rocketed up. Now let's talk about what binary options are.


The best way to describe binary options is to state that this is the trade that provides two different results, either your trade concludes in the money, meaning winner, or out of the money, meaning loser. This is in sharp contrast to existing vanilla options where theories including time decay, volatility, strike price, time to expiration all go into the pricing. Binary options provide a simple risk reward proposition, and this is stated evidently before going into the trade. Return percentage of approximately between 60% to 90% for "winning" trade and 0% to 15% for losing trades are placed by a number of trading sites which are providing binary options.

Binary options are often provided on a range of underlying assets over most trading platforms. Even though the number of stocks is limited, equities are provided amongst most platforms. It is fair to say that stock binary options are offered only on the biggest, most liquid titles including Apple, Google, Microsoft, Intel, JP Morgan, and as such most of the time. Most part of stock based binary options are made up of technology stocks. Binary options of Forex (Foreign exchange) are as well introduced over the platforms with most major currency pairs covering up the huge part of trading. Well-accepted commodities including Gold, Silver, Oil, Natural Gas, and Copper and Major Indexes worldwide are found on binary options trading platforms.

Expiration seem a little confusing for the beginner traders who are planning to implement binary options. It is common to think that all binary options carry a 1-hour expiration time. This is wrong. We have witnessed expiration range between 15 minutes on the lowest and up to one month max. We don't think there are a lot of traders going for one-month binary options but some people find it useful. Binary options can provide traders with the short time frame and payout structure of these options are so simple. That is why a lot of traders prefer one-hour binary options.