Binary Options: The Fundamentals

Along with the world’s leading financial markets e.g. the Stock Market, the Forex market, the commodities market etc. comes a smaller trading arena which is not very well-known.


Every market has its advantages and disadvantages but some trading options offer traders much more to gain than they have to lose. Binary Options are such a thing. There are many characteristics that differentiate Binary Options from its colleagues so we would like to give a basic overview about the attraction of Binary Options to the retail trader.


Binary Options are also referred to as All or Nothing Options, Digital Options as well Fixed Return Options or FROs.


In 2007 the Options Clearing Corporation introduced a rule that would allow Binary Options and the rule was approved in 2008 by the Securities and Exchange Commission. In May 2008 there was a big month for Binary Options with the American Stock Exchange incorporating them in the form of European cash or nothing Binary Options.


So what exactly are Binary Options? Binary Options are providing a unique trading option for the retail trader which offers many advantages over other financial markets. Like the meaning of the word, Binary Options leave you with only two possible outcomes which means that you can either win or lose your investment.


Let us have a look how it works: You take a stock, commodity, or currency pair and make a forecast about the direction in which the instrument will move. The expiry date of the Binary Option can be as soon as one hour and if that instrument indeed moved in the direction of the your forecast you are what is called “In the Money”. That means you came out of this specific trade profitable.


What is unique about this style of trading among many other instruments is that you can not lose more than your original investment. Either you predicted correctly in which case you can make up to 72% of the original investment or you predicted inaccurately in which case you lose their original investment with the possibility of keeping a minimal percentage which is based on the broker’s policy.


A characteristic which Binary Options and Forex have in common is that no instrument is actually being traded. There are no goods being traded between hands and all the trading is being conducted virtually which is an important point to understand.


In conclusion Binary Options have a lot to offer when it comes to making quick and easy profits however being as the options you are actually trading are instruments from other markets such as Forex or Commodities knowing the market will obviously prove very beneficial in terms of your Binary Option profits.