Binary Options 101
1- What are Binary Options?
According to Nadex Binary Options,
“Binary options are limited risk contracts based on a simple yes/no market proposition like will the markets go up by the end of the trading week.Binary options offer traders ways to trade the most active stock indices, commodities, forex, event and bitcoin markets with relatively low collateral.
The official Wikipedia definition of Binary Options is:
“In finance, a binary option is a type of option in which the payoff can take only two possible outcomes, either some fixed monetary amount (or a precise predefined quantity or units of some asset) or nothing at all (in contrast to ordinary financial options that typically have a continuous spectrum of payoff).”
Binary Options Warning for USA Traders: Though binary options sometimes trade on regulated exchanges, they are generally unregulated, trading on the internet, and prone to fraud. The U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have issued a joint warning to American investors regarding unregulated binary options.
2- What are the Pro’s and Cons of Binary Options?
One major advantage of placing Binary Options trades is that you will find a range of different expiry times are available which can be as short as just 60 seconds or as long as one month. Some other benefits of trading binary options include:
Limited Risk – The maximum amount you can lose on every trade is your original investment
Low Collateral Required – Binary contracts are priced between 0 and $100
One of the biggest cons of course is the fact that this industry is still largely unregulated. Scammers and unregulated websites make up the majority of the industry so far but legitimate companies and financial insitiutions have stepped it up lately and more and more traders are helping to cut back on the scams and make binary options a true financial instrument instead of a gambling one.
3- What assets can be traded as a Binary Option?
This largely depends on the broker but the following are common binary option assets that can be traded ata variety of expiry times:
Indices – Such as Nasdaq, Dow Jones, FTSE, Nikkei and many more
Forex – Combinations for all the major currencies such as USD, EUR, GBP ,JPY and AUD just to name a few
Commodities – Gold, Silver, Oil, Corn, Coffee etc
Stocks- The biggest and most interesting companies in the world from a variety of industries are available
Bitcoin- Even the crytocurrency can now be traded a binary options
4- What Binary Option Broker should I choose?
This is the most popular question that newcomers want to know about binary options. The most obvious answer will be based on according to where you live. We here at Dex Signals have a huge variety of countries represented but being based in the United States we fall into the SEC regulations and there are only 3 USA regulated exchanges with Nadex being the largest. When binary options were first introduced, the UK authorities described them as “fixed odds bets” and classed them as gambling for the purposes of legal and financial regulation. So binary options brokers were placed under the jurisdiction of the UK Gambling Commission. In Europe however, a different view was taken. Standard European practice was to class binary options and binary options trading as a financial instrument and govern them accordingly. Some nations began to regulate them appropriately and it was ultimately the CySec regulation that was adopted across Europe. CySec registration is now the standard that the most reputable binary options brokers will hold. Recently though more popularity has the UK wanting to classify binary options as financial products. Classing binaries as financial products would see them fall under the jurisdiction of the Financial Conduct Authority (FCA). Check with the regulatory commision where you live to see how binary options are classifieds and if there are any regulated brokers.
Binary Option Trader Warning: Do your research Before you make a deposit with Any binary option broker. Make sure they are regulated. Read the terms and conditions thoroughly. If they offer bonuses or free money, make sure you know the terms of accepting these bonuses as these are common ways for the scam and unregulated sites to attract traders.