The Basics of Binary options

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The binary options market has joined other recognized financial markets, such as stock markets, Forex markets and commodities markets as a popular financial instrument for investors. In fact, binary options trading has become the most popular venture for investors looking to make a quick buck.

Unlike other monetary vehicles, the binary options market offers traders opportunities to gain more than they lose. Binary options brokers offer many features that appeal to the novice as well as experienced trader and it is a simple system, easily understood and put into play. Binary options are also referred to as All or Nothing Options, Digital Options, as well Fixed Return Options or FROs.

Binary options became acceptable for trading in 2007 and were approved at a legitimate investment instrument in 2008 by the Securities and Exchange Commission. By May 2008, the American Stock Exchange incorporated them in the form of European cash or nothing binary options.

Binary Option Features

There are many characteristics that differentiate binary options from other investments, but like its colleagues, it is important to fully understand the trading process before putting down any money.

What exactly are binary options? Binary options provide a unique option for the retail trader with many advantages over other financial markets such as Forex or stocks. Like the meaning of the word, binary (meaning two) options leave the traders with only two possible outcomes. You can either win or lose your investment.

The way it works is as follows: A trader chooses a stock, commodity or currency pair, and makes a prediction about the direction that instrument will move. The expiry date of the binary option can be as soon as one hour and if that instrument has indeed moved in the direction of the trader’s prediction, the trader is “In the money”. That means this specific trade was profitable.

What is unique about this style of trading, among many other things, is that the trader cannot lose more than the original investment. Either the trader predicted correctly, in which case, he can make up to 72% of the original investment, or he predicted inaccurately, in which case, he loses their original investment. There is the possibility of keeping a minimal percentage of the trade depending on the broker’s policy. Interestingly enough, binary options and Forex share a common characteristic in that no physical instrument is actually being traded. No goods are ever cross hands and all the trading is conducted virtually.

Binary Option Brokers

Choosing a binary options broker should be based on word of mouth and referrals. One should look for ease of setting up an account and regulatory approval by reputable authorities. Most brokerage sites list user-friendly, highly marketable platforms, unique trading features, professional risk management and first-class service among their many qualities. Some sites run smartphone and android applications allowing the trader to be on target every minute of the day. The newest trend in trading platforms is their ability to be utilized without downloading the program.

Free demo trading accounts are an essential part of any online brokerage and are very beneficial for introducing new traders to the binary options markets. Some brokers offer bonuses; most do not.

Binary options have a lot to offer when it comes to making quick and easy profits. But like with any investment, understanding the way binary options work within the framework of global financial markets will bring considerable more success than blindly trading with no prior training or knowledge.

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