What are Binary Options?

What are Binary Options?

In the finance world options are contracts that give the buyer (also referred to as a owner or holder) the right (option) but not obligation, to sell or buy an underlying instrument or asset at a fixed price before or on a fixed date.

A binary option is a type of option where there can only be 2 possible outcomes.  Either nothing at all or a fixed monetary amount.  This monetary amount can also be substituted for a specific predetermined quantity or units of some assets.

2008 was a monumental year in the finance industry.  The subprime mortgage crisis in the US triggered the fall of many pivotal companies & an overall negative affect on the global financial system.  This encouraged experts to attempt to create new forms of investments to stimulate the economy.

This is the history of Binary Options, introduced in this 2008 they were said to be a new, inexpensive form of investment for the average trader.  They first appeared on the Chicago Board of Exchange (CBOE) as a tradable asset.

ic_launcher_72x72 Binary Options are also referred to as all or nothing options, digital options and fixed return options on the American Stock Exchange.

Common terminology when dealing with Binary Options is being “in the money” or “out the money”.  “In the money” means an asset has reached a certain value after the predetermined amount of time.  Out of the money refers to the exact opposite outcome – where the asset did not reach the predetermined value before the time expired.  There are two main types of Binary Options. The cash or nothing-binary option and the asset or nothing-binary option.

Some brokers offer a specific percentage of the cash as a refund in case the asset does not reach the price in time.  Usually this refund caps out at about 15% but at least not all is lost if you do not finish “in the money”.

Binary Options have been long the subject of criticism from many experts in the industry.  Because of the basically 50/50 nature of Binary Options, many stock experts dislike them because it encourages people to buy stocks with very little knowledge of the market.  According to Canadian investor Brian Pope in Forbes: “Binary Options can become quickly addictive”.

In that case… Why trade Binary Options?

While Binary Options are largely based on “luck” there are many reasons why a person would decide to pursue them.  One main reason is that there are so many high tech tools available in this era, that help people to help them make decisions about how to proceed.

Having knowledge of the stock market definitelyhelps; however, perusingBinary Options is based mainly on research.  In addition to research, risk management is another key component in managing Binary Options.   This helps offset the “luck” aspect of Binary Options that many experts dislike.

Online platforms have contributed to making Binary Options easier than ever to get into.  They only require a small amount of knowledge to start but true success comes from research, in depth knowledge and proper risk management.  Binary Options can be exciting and lucrative but these two qualities also end up luring people in & getting then into trouble.  If you’re looking to get into Binary Options your best option is to become as knowledgeable as possible and figure out your risk tolerance.