Binary Options Basics: History, Asset Types and Workings

For many years, trading the financial markets was the reserve of financial institutions and professional investors only. The advent of the internet brought currency trading to the individuals, but still, a strong understanding and experience of the markets was needed as the risk to the beginner was multiplied by the leveraged trading, which meant it was very easy for the novice to lose much more than they invested.

Binaries have in fact been around for a number of years and are available to purchase ‘over-the-counter’ directly from the seller. However, in 2008 the Securities and Exchange Commission (SEC) granted permission for the trading of these options to be listed in the US markets. This has fueled a rapid increase in the number of brokers offering online trading services for these options. The way these options were structured  also made them one of the easiest way to invest in the financial markets. Couppled with the opportunity to earn high returns within a relatively short period of time, this gave rise to a boom in the market for these non traditional options.

So What Are Binary Options?

Binaries are at thier simplest form, contracts which offer a fixed return for predicting how the price movement of a certain currency, stock, commodity or index will move over a predetermined period of time. The duality aspect, the fact that there can only be two possible outcome for these contracts is what gives them thier name.

 

A trader will receive a payout predetermined at the onset of the contract if their prediction is correct and they finish ‘in-the-money’ or they will lose a predetermined portion of their original investment if their prediction at the contract expiry finishes ‘out-of-the-money’.

Sometimes referred to as ‘digital options’, ‘fixed return options (FROs)’ or ‘all-or-nothing’ options, each option is made up of 4 elements:

1)       The Asset

Referred to as underlying assets, the trader does not actually purchase the asset itself and never actually owns them. Instead, the trader purchases the option to buy an asset particular asset. The assets can be anything from a whole of stocks, currency pairs, market indices, commodities and even government bonds.

2)        The Contract Length

All option contracts have a set expiry time. Whereas many traditional types of investing require an investment that can last up to several months before a return is produced, these non traditional option contracts can be anything from as little as 5 minutes before expiration up to 7 days.

3)       The Prediction

All a trader has to do is make a prediction in which direction the price of an asset will move in before or at the time of the contract expiry. There are generally three methods involved:

The High/Low instrument:

Choose ‘High’ if you think that the price of an underlying asset at the time of expiry will be higher than the current price.

Choose ‘Low’ if you think that the price of an underlying asset at the time of expiry will be lower than the current price.

The Touch/No Touch instrument:

Choose ‘Touch’ if you think the price of an asset will touch a target price at any time before the option expires.

Choose ‘No Touch’ if you think the price of an asset will not touch a target price at any time before the option expires.

The Boundary instrument:

Choose ‘In’ if you think the price of an asset will close inside the range formed by the upper and lower target prices at the time the option expires

Choose ‘Out’ if you think the price of an asset will close outside the range formed by the upper and lower target prices at the time the option expires.

4)       Investment Amount

The final element to the option contract is the amount to invest.  Every trade is for a fixed amount specified by the trader at the outset of the trade. It is important to note that the trader, unlike traditional forex, will never lose more than he originally invested.

 

Why Trade Digital Options?

There are many reasons why more and more people from all walks of life are trading this type of options.

Simplicity – Just simple yes/no type investment decisions are all you need to make, meaning anyone can trade the financial markets in an uncomplicated fashion.

Trade in All Conditions – It doesn’t matter if the markets are rising or falling, a binary trader can profit any market conditions. In fact, the more volatile the markets, the more profit opportunities as large swings in price create more chances to for returns than flat markets.

Regulated – Regulation has been only recently brought in to regulate the trading of this type of options. This helps to make the trading enviroment safer and more protected for investors.

Limited Risk – Unlike traditional Forex, there is no leverage involved which means you can only lose a proportion of the amount you invested and no more. This allows the trader to determine the risk levels and can keep the overall exposure relatively small.

Fast Paced – Expiry times for an option can be as little as 5 minutes with possibilities to close a position early to secure the profit or limit the loss. This makes it possible to make literally hundreds of trades throughout a day.

Affordable – Because you are not buying the underlying asset itself, rather just investing in the prediction of its price movement. This makes the investing in expensive assets like Gold, Apple Stock and Oil affordable to the average trader and opens up markets previously inaccessible.

High Returns – One of the key components to the success in popularity of binary options is the fixed returns they offer. A typical option, lasting from 5 minutes to a couple of hours, can yield up to 55 – 90% if predicted correctly. These short terms, high yield returns can mean the trader can accumulate substantial profits over the course of just one trading day.

Before you Trade – Binary Options Basic Strategy That Anyone Can Use

Despite its simplicity and the opportunity to make high returns making just easy yes/no type investment decisions, a binary trader can give themselves a distinct edge and an increased chance of trading success in a number of ways. The very basic strategy you see in this chapter can be adhered to and learnt by anyone with little or no experience in financial trading, yet can still have a significant impact on the overall profit or loss of the trader.

Binary Options Basic Strategy Steps:

Learn the Assets

The choice of assets in which to trade can run into the hundreds with that number increasing all the time. Each asset has its own characteristics, so it is best advised to commit the time and energy to specialize in just a few assets than try to understand the complexities of all of them. The more you understand about an asset, the easier it is to explain and predict why it is moving in one particular direction. The targeting of just a couple of assets to focus on is probably the most rewarding of all the tactics that can be applied to binary trading and can open the doors to more profit opportunities.

Practice

Practice makes perfect! It doesn’t matter if you are playing sports or making an investment. The more you practice; the more chance you will get it right when it really matters. Having a practice account or trying a demo can give the trader opportunities to get a feel for the platform, try out new strategies and familiarize yourself with the customer service without having to actually put any money down.

Read the news

Knowing what is happening in the world doesn’t involve scouring the news for hours on end and more often than not, a few  targeted news sites  can keep even the most isolated trader up to date with  the news and events that formulate market direction. Be sure to read our daily analysis which covers all the major markets including Forex, Stocks, Commodities and Indices. It even looks at the outlook for the day with upcoming economic events and how they might affect the various assets.  Having access to a good economic calendar will keep the trader up to date on what data is being released and when – a key cause of market volatility.

Choose the right platform

There is no shortage of choice in binary options trading platforms, even after regulation weeded out some of the undesirables. The platforms in which trade vary considerably.   So when choosing a platform that is right for you, it is important to consider:

Number of Assets – Different platforms offer different assets. Generally, the number of assets a platform will offer can be as little as 20 running up to the hundreds for other platforms. This is not to say that the platform offering the most assets is the best; even though more profit opportunities are created by an increased amount of assets to trade, the important aspect is choosing a platform that offers the assets right for you, especially if you are looking to trade currency pairs or stocks. As a rule, avoid trading platforms which offer just a few currency pairs and a limited number of assets as these will limit your profit opportunities.

The Returns – We all want to maximize our return which is why it is important to compare the different returns that platforms offer and they do vary wildly. Trading gold over one hour may offer a fixed return of 65% with one platform, but the same contract can produce a return of 80% with another platform. That means you can increase your profits by 15% for doing nothing other than your homework in choosing the right platform.

Deposits/Withdrawals – Something that is often over looked by traders but can be very important in money management. The different platforms have different rules regarding every aspect of the deposit and withdrawal process. There can be limitations and penalties on the withdrawals which may affect your liquidity, so read through the terms and conditions to make sure the platforms banking policy suits you.

Others – Now that regulation is being phased in; issues like security are becoming less of an issue than before. Check the security level by looking at its encryption level. The trading platform should at least have 128 bit SSL encryption ability from a major software security provider.

The platform must offer access that matches your needs which again, is less of a problem, with many platforms now offering 24/7 trading

Customer service – the customer service is always an important aspect to choosing the right platform which also often gets overlooked. Trying out a demo account will give you a feel of the customer service on offer. It’s a sad fact that like with any business, not all platforms offer customer service that is up to scratch, so make sure the platform you choose offers the customer services you expect and want.

How to Trade

Once a suitable platform has been chosen long with which assets to trade and only after the research has been done, it is time to make a trade. Trading in binary options could not be any easier:

1)       Choose an Asset – Anything from currency pairs like the EUR/USD, Stocks like Yahoo, Indices like the Nikkei 225 and commodities like Gold.

2)       Make your Prediction –  Select a call or put option on the asset you have chosen

3)       Choose the amount to invest

4)       Wait for Expiry.

If your prediction was correct at the time of expiry; you are in the money and receive the stated payout. If your prediction was incorrect at the time of expiry; you are out of the money, but still receive a percentage of your original stake back up to approximately 15%.

Overview and comparison of major cryptocurrencies

Bitcoin, Litecoin, cryptocurrencies, mining… It seems like these new words are popping up everywhere in recent months. In part, the cryptocurrency boom is due to the fact that historically they have shown much higher profitability than the traditional dollar or euro.

But there are actually a number of reasons why cryptocurrencies are so popular. They are safe, anonymous, and completely decentralized. Unlike conventional currencies, they are not controlled or regulated by any particular authority, and their flow is completely determined by market demand. They are also nearly impossible to forge, thanks to a highly complex code system that encrypts each transmission, providing complete anonymity and security for every user.

Although Bitcoin is practically the only cryptocurrency discussed most of the time, there are actually many different cryptocurrencies available (in fact, very many).

So let’s take a closer look at the major ones.

Bitcoin and Bitcoin Cash

 

Bitcoin is the digital currency that is stored in the unique payment system of the same name, where there is no controlling body and all participants are considered peers. Bitcoins can be used to make purchases and transfers if the recipient agrees to receive Bitcoin and is able to do so. The main idea behindBitcoin is complete decentralization: neither the central bank, nor the government, nor any other administrative organization can influence or control Bitcoin.

As for Bitcoin’s profitability, it is legendary.

This isn’t surprising – after all, a Bitcoin was sold for 0.003 dollars in the very beginning, and now it is traded at around USD 11500.

Bitcoin Cash is a new currency that emerged from a hard fork of the Bitcoin on August 1, 2017. It is a more scalable replication of the original blockchain with individual blocks increased to 8 MB.

The way a fork works is that instead of creating a new blockchain from scratch, the fork creates a duplicate blockchain with the same history.

What this actually means is that all owners of pre-fork Bitcoins are now owners of the same amount of Bitcoin Cash, since both cryptocurrencies had the same blockchain up until the moment of the fork.Right after its release, Bitcoin Cash was worth about USD 2500, but it stabilized in the USD 1550-1700 range in the following days.

Dash

 

Dash (“Digital Cash”) is a decentralized open payment system that uses an algorithm called Darksend to keep transactions anonymous. This currency has been renamed twice, from Darkcoin in 2015 and Xcoin in 2014.

It offers all the possibilities of Bitcoin, as well as instant and completely anonymous transactions through so-called Masternodes.

Masternodes mix up the transaction data to erase all of its tracks, and then get a percentage of the transaction value.

The main differences between Dash and Bitcoin are:

  • Transactions in Dash are anonymous.
  • Dash uses not one, but a combination of several cryptographic algorithms.
  • Mining Dash consumes less energy.

Decisions about the further development of the system are made collectively by all members of the Dash network through Decentralized Governance, instead of being decided by individual programmers.

The value of this cryptocurrency passed the $1 billion mark in May 2017.

Ethereum

 

Ethereum is a platform for creating decentralized online services based on a blockchain that uses smart contracts. It is implemented as a single decentralized virtual machine.

Developed by 19-year-old Vitalik Buterin, this cryptocurrency raised 18 million dollars in its ICO in August 2013 and was launched in July of 2015.

Unlike other cryptocurrencies, its creators do not limit the role of the Ether to payments, but offer it as a means for exchanging resources or registering transactions of assets using smart contracts. In particular, its developers have called the Ether a “crypto fuel” for smart contracts.

The Ethereum technology makes it possible to register any transactions with any assets using a blockchain-type distributed database of contracts, without resorting to traditional legal procedures. This possibility provides competition for the existing transaction registration system. According to The Economist magazine, the technology of “smart contracts” marks a new era in financial technologies.

Developers can issue tokens or units of their currency over a blockchain network.

In 2017, Ethereum grew by 4000% and became the second largest cryptocurrency after Bitcoin.

RIPPLE

 

Ripple is a distributed payment system that uses the same cryptocurrency (XRP) as the internal payment unit.

First of all, we need to clarify that Ripple is not a Bitcoin clone and Ripple technology is based on a completely different concept, called the “principle of trust”.

XRP is similar to BTC:

Ripple is divided out to a large number of decimal places.

  • It is also easily transmitted in electronic form and has high cryptographic stability.
  • It is interchangeable and homogeneous.

XRP also has advantages over BTC:

  • Transactions in the network are much faster.
  • Ripple has some intrinsic value, since it allows you to conduct transactions.
  • Ripple coins are deflationary, as they are destroyed by the network after the transaction is carried out, so the total number of XRPs decreases over time.

As of 2017, Ripple is ranked the fourth cryptocurrency in terms of market capitalization, second only to Bitcoin and Ethereum.

Litecoin

Litecoin is a peer-to-peer internet currency that includes nearly zero-cost payments to anywhere in the world.

Litecoin is a fork of Bitcoin, as they were the same cryptocurrency until 2011.

The emission of Litecoins, as with Bitcoins, is algorithmically limited. The maximum amount of Litecoins that will go into circulation is four times greater than the maximum number of Bitcoins (84 million versus 21).The initial reward for each block is 50 Litecoins.Litecoin blocks are formed 4 times faster than Bitcoin blocks. Their pace of emissions and compensations will be similar over time.

About 3/4 of all Litecoins will be generated in 2020.

Will cryptocurrencies be the new norm after 2017? It might be too early to judge. There is one thing we know for certain – cryptocurrencies are going to be on the minds of experts and ordinary people for a long time.

Don’t forget that the first real thing bought using Bitcoin was a pizza sold for 10,000 bitcoins. In 2009, the owner of a pizzeria decided to believe in the cryptocurrency and traded the pizza for a pittance.  This decision brought him at least $4,000,000 and set off a major financial revolution.

If you believe in the potential of cryptocurrency and blockchain technology, if you want to secure a place for yourself in a future where cryptocurrencies reign, and if you want to witness the origins of a new financial system, then it is best to invest now.

The best way to do this is on the Option platform, which is one of the largest online exchanges in the world.

Option offers its customers a wide range of cryptocurrency assets, a steadily growing number of available trading instruments, everything necessary for technical and fundamental analysis, a user-friendly interface, 24/7 customer support, lightning-fast credits and withdrawals of funds, and much, much more.

May you and your assets continue to grow!