Overview of the Binary Options Market

23 Apr 2013, 08:00

Everybody knows a thing or two about the major well-established financial markets like the Stock Market or the Forex Market. The binary options market is a new one and numerous traders are not even aware of its existence. However, even though it is still a pretty small market, it offers some advantages which can’t be neglected.

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All financial markets have their pros and cons, but some seem to be offering more profitable opportunities than others. This is the case with the binary options market. It is different from traditional markets and some features make it very attractive for traders. There are specific points which make this market a good choice for potential and existing traders.

The name of the market in itself suggests the nature of the trades which occur here. Binary options are also called Fixed Return Options (FROs), All or Nothing Options and Digital options. The history of the market starts in 2007 when a rule from the Options Clearing Corporation made it possible to trade them. Only in 2008 binary options became known and popular because the Securities and Exchange Commission approved that rule and the American Stock Exchange incorporated binary options. They were called at the time European cash or nothing binary options.

Binary options are not like other financial assets traded on traditional markets. Their market has several advantages over the forex or the stock market. Players trade one out of two possible outcomes. If they are able to predict the real outcome, they win. If they put their money on the other outcome, they lose.

All sorts of assets can be traded on the binary options market including stock indices, currencies and commodities. Traders basically choose they asset they want to trade and make assumptions concerning the direction that the price will take by the expiry time. Expiry times can be as short as one hour or even less. If by that time the price of the asset takes the predicted directions, trades are in the money and traders make profit.

The aspect that makes the binary options market indeed unique refers to the fact that traders can’t lose more than the initial value of their trade. If their predictions concerning price are correct, they can earn up to 70% of their trade value. In the opposite scenario, they lose the money they placed on that trade and nothing more. Some brokers even allow them to keep a percentage of up to 15 from their initial investment if this goes wrong.

There are also similarities between the binary options market and other markets. For instance, just like on the forex market, assets are actually traded virtually. No goods are in the physical possession of the traders and this is a very important aspect.
There are indeed important advantages which make the binary options market a good place for earning profits.

 

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