Trading Binary Options

What are Binary Options?

Trading binary options has become so popular because this is a simple financial instrument based on a simple ‘yes’ or ‘no’ proposition. Traders have to decide if they bet on the presumption that an underlying asset will go at a certain moment above a certain price or under a certain price. The trades are places based on this kind of predictions. In short, binary options allow to trade markets with capped profit potential as well as capped risk. This makes binary options one of the simplest assets to trade.

Simplicity

Their simplicity has led to a broad appeal among newcomers and seasoned traders alike. However, before getting involved in binary options trades one should fully understand how they work, what time frames and specific markets can be traded with binary options, what are the main pros and cons to these products, as well as which brokerage companies the best on the market.

Legal issues and different types of binary

For residents in the United States another issue to consider is which companies are authorized to legally provide binary options to them. U.S. residents need to be aware of the fact that binary options available on U.S. exchanges are typically structured differently than binary options traded outside the U.S.

Trading binary options is considered to be a zero-sum game. Each trader invests some capital for the trade. If the binary option prediction is true then the trader wins, if the prediction fails then he lose this investment in the binary option purchased. So each binary option has a total value potential when what some trader wins other loses.

Underlying Assets

Binary options trades involve multiple asset classes such as major U.S. indices (the Dow 30, the S&P 500, Nasdaq 100, and Russell 2000), global indices for Japan (Japan 225), Germany (Germany 30), the United Kingdom (FTSE 100), commodity binary options related to the price of silver, gold, natural gas, crude oil, soybeans, corn, copper, and major Forex pairs. It is also possible to trade news events with event binary options that predict whether the jobless claims and nonfarm payrolls will come in below or above the estimates, or whether the Federal Reserve will increase or decrease rates.

A trader may choose from various time frames for binary options, from those that expire in minutes and hours, to those that expire daily or weekly. Binary options with short time frames are usually traded by day traders. Those with longer time frames are traded more by those looking to hedge other commodity, forex, or stock holdings against day’s movements.

Because the risk on binary options is capped they have some advantages over other traditional trades. With binary options a trader cannot lose more than the money invested to purchase the trade. Binary options also have the advantage to allow better than average returns even in quiet markets.

Brokers and Exchanges

For newcomers to binary options trading it is important to choose the right binary options trading company, one of the best options is opening a Banc De Binary binary options trading account.

In the United States the first legal exchange focused on binary options was the Nadex exchange. They provide their own browser based platform for trading binary options and live accounts or demo accounts for traders. The Nadex trading platforms provides direct market access and real time charts. Another platform for legally trading binary options in the United States is the Chicago Board Options Exchange. Traders who have a CBOE options-approved brokerage account can also trade through their traditional trading account CBOE binary options. They are traded through various option brokers with various commission fees.