Binary Options, at times referred to as digital options represent a trading process where the payoff is structured in such a way that if the option expires in the money you may gain. If the option expires out of money, you receive nothing.
A common type of options trade is known as the cash-or-nothing call option. If you purchase a binary cash-or-nothing call option of a particular company at $100, then you will receive compensation if the stock of that company is trading at or above $100 (the strike price) at the point of maturity. If the stock doesn’t reach that trading price then you will receive nothing. The pricing of a cash-or-nothing call option is determined using probability and the likelihood of the underlying asset in this case a company reaching a specific strike price.
Binary Options can be applied to a broad range of financial products, and are rapidly growing in popularity. A point noted by Daphnis Group Corporations lead analyst Jason Moore “the countries that showed the higher growth rates are Russia and China.” Binaries are becoming increasingly established across Europe and the US but their infiltration into emerging markets could accelerate the growth of this product set.
Forex trading remains the most popular market in the world but binary options provide a distinct advantage in the form of risk exposure. Binary options are strictly limited risk products; losses cannot exceed your initial deposit. These products are also conducive to small investments and trading simplicity. The process can in many ways be summarized as “yes” an event happens or “no” an event does not happen.
Like in every high growth financial platform, binary options have distinct disadvantages too. One of these includes deceptive platforms. Since the regulatory umbrella is very strict in the US, Australia and most of Europe, these companies license themselves in offshore locations. They also use questionable sometimes even deceptive marketing tactics to lure in customers. Apart from giving out lucrative items like iPhones and Flat screen TVs for signing up, the brokers often use complex bonus programs that often end badly for the customer.
Offshore companies known as “bucket shops” are distorting the reputation of this product set. Ensure that your provider is fully regulated before investing. For US traders, Nadex is a fully regulated US exchange offering binary options.