Binary Options trading has been practised for more than three decades, but until recently it was mostly a fringe investment platform available only in a small number of closed markets. The tide turned in 2008 because of several factors, and now it’s a viable trading option that’s gaining a global reputation. The first and largest binary options broker is Anyoption, a platform trademarked and operated by Ourobros Derivatives Trading Limited of Cyprus.
What is Binary Options Trading?
Binary options trading is something of an all-or-nothing proposition, but that is a bit an over simplification. The name binary is gleaned from the fact that there are only two outcomes available: win or lose. They’re also known as digital options on the Forex markets and by the term Fixed Return Options, or FROs, on the American stock exchanges.
The investor is speculating on the fact that a certain stock will trade either at or above a certain amount, known as a Call/up option, or at or below a certain mark, or on a Call/down option, by at specific expiration time or date. The payoff is known in advance, and if the investor calls it correctly, they collect the amount of the payout. An example is an investor betting that a stock will sell at $50 a share or more at the closing bell, and the payout amount is $500. If that stock acts accordingly, the investor nets the $500; and if it sells for less than $50, they get nothing. These scenarios are referred to, respectively, as “finishing in the money” or “finishing out of the money.”
Binary options can be purchased on almost on stock that’s traded, and they can go long or short, meaning they can be purchased in as little as 60 seconds before the markets close, or as far in advance as a month.
The Road to Regulation
Binary options have been criticized as an illegitimate from of trading, not because it’s illegal or duplicitous, but because traditional traders felt that it requires little skill or knowledge of trading; for many years, serious investors considered it more of a game. All of that changed with regulation and standardization of the practice.
Though practice originated with the Cyprus Securities Exchange Commission, or CySEC, standardization of the practice on the American stock exchanges was implemented through the The Chicago Board of Options Exchange, which was created by the Board of Trade, and allowed purchase of binary options to be transacted over-the-counter. Further regulation and transparency, in addition to the creation of the Options Clearing Corporation, enabled them to be offered publicly by the SEC in late 2008, followed shortly by the CBOE. Legitimacy was further established by improvements in how brokers handle binary options trading, including the creation of better trading platforms, improved trading tools, a higher level of customer service and providing real-time trade information from reputable sources.
Trading in binary options is now safer, and if the current level of business is any indication, this method of investing will only continue to improve and increase in the future.