There is now a relative newcomer on the block, when it comes to down to the online forex trading market, which is called Binary Trading Options. These options are also known as all-or-nothing options, digital options, or Fixed Return Options (FROs), on stocks, commodities, indexes, foreign exchange, and other derivatives.
It is relatively easy to place a bet, which is what one is doing in reality, on virtually anything which is publicly traded – depending on the website one uses, of which, there are many trading platforms to choose from. Some offer a substantially wider choice than others and some provide free guides, for those just getting started.
There are now literally hundreds of different Binary Options, which can be either traded online, from your PC or mobile Binary Options Trading platform. In fact one is now spoilt for choice. There are even free-to-open demo accounts now, with many Binary Options Trading websites.
A quick Google search on Binary Options Trading throws up 13,100, 000 hits: with many offering free help for beginners and other websites showing their top ten or top seven preferred Trading Options websites.
The overriding reason that Binary Options Trading has become so popular, so quickly is the fact that people can make these trades directly from their tablet or Smartphone devices. I.e. there is no real need to be sitting in front of a monitor anymore. One can literally trade now, anytime, from anywhere they are in world...as long as there is an Internet signal /connection.
At the end of the day...all these websites are shouting and touting the same thing to potential punters, "Make more money, with us and our system". And, that (making money) is always the ‘bottom line,’ luring people in to...well...make money. I.e. make money for the house...that is, for the trading platforms, marketing their wares.
Some sites describe binary options as the exciting new type of "investment", which is an interesting word to use. An investment...? I wonder and I very much doubt so. For, how could placing a bet, on which way a stock or commodity go, within the next ten minutes, ever be an "investment"? That’s a new one on me.
Apart from all of these websites touting about how you are going to make money with them – they also have one other thing in common they offer what is called “controlled risk.” Meaning one can’t lose more than a specified amount = low cost, big gains...if one has worked things out correctly that is.
So, how does it work and why its appeal..?
When a binary trade option is made, it is made on a very simple yes or no proposition. In a nutshell a trader places a trade (or in good, old East London Cockney terminology – I was born and raised there) makes a punt on whether one believes or has that “gut feeling” that an underlying asset will be above a certain price at a certain time.
In Binary Options Trading, there can only ever be one of two answers...and it is either a yes or a no answer. And, if one gets it right...then one makes some money. Hence its broad appeal – to seasoned and new traders alike, which is its yes or no simplicity – combined with the various mobile platforms now springing up like mushrooms, which all makes Options Trading, indeed, a very nice option to literally have in ones pocket.
Having said that...people wishing to try out their skills and luck, should fully familiarise themselves and understand how Binary Trading Options work: the markets and the time frames they are able to trade with Binary Options and last, but not least...the advantages and disadvantages of these products and, if one is a US citizen...which companies are legally entitled to offer these services to US residents.
Let us look at an example of what capped risk and capped profit potential looks like: Will the price of gold be above $1,250 at 1:30 p.m. today?
If one believes it will be, one buys the binary option. If one thinks gold will be below $1,250 at 1:30 p.m., then one sells this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bidding and asking price – more commonly called the bid and ask price in financial trading circles.
This type of trading can very quickly become addictive – especially to a market junky and the reason is quite simple. Although the amounts seem to be rather small, over a given period of time, the sums spent could turn out to be substantial...especially if one makes numerous trades during the day.
Secondly, even the most seasoned trader can not consistently predict which way the commodity (or stock) will go, within a very short time frame. Shares can go up, as well as down. Will Apple shares go up or down in value within the next ten minutes? Will the UK grocer/retailer TESCO suddenly, and within the next ten minutes, make yet another surprise announcement – issuing yet another profits warning, as it has done so recently, for example?
Thirdly, it is always worth remembering that whichever way, one tries to cut the cake – hedging one’s bets...the house always has the edge. For the house, (in this case the trading platform) it is always a win, win situation; in whichever direction the trade goes – be it north or south.
Finally, the Binary Options Trading market is, right now, largely unregulated and it is, therefore, really a Wild West scenario out there. Therefore, let us not confuse nor even be confused, by platforms touting Binary Options Trading as an “investment.” They are not investments, one is dabbling with. Binary Options Trading, in its simplest analogy, is either a game of roulette or craps. Nothing more. Nothing less.
Binary Options platforms, which are not regulated (and there are many of them), more often than not, client money(s) is not necessarily held in a trust account, which is a requisite of governmental, financial regulations. Moreover, transactions are not monitored by third parties – thus ensuring fair play.
The Business Model:
Fees are not taken/charged from “investors.” Profit is, however, derived from the difference between the options which expire in the money, as to those of the options which expire out of the money.
Are Binary Trading Options doomed to die?
This factor still remains to be seen. However, I feel that as with the shadow banking system, which was largely responsible for the worldwide financial crisis in 2008; which was unregulated and totally underestimated by the financial regulators (and, from which, we still have not fully recovered from), I feel that it is only a matter of time, before there will be a tightening of the net: with regulations being introduced globally. What could happen to Binary Options Trading, at least in their current business model format, as a result? Well...I would not like to place a yes or no call on that one. At least not yet.
by Victor Romain