For many years binary options were only available as part of other platforms but could not be traded on their own. All of this changed in 2008 when the Chicago Board of Exchange made them available as a stand-alone market. That year the North American Derivatives Exchange (NADEX) began to make them available. With the latest developments of the internet and its wide availability trading binary options became more popular. Since they have been included in the major Exchanges they have become a very important part of the entire exchange market. This means that they are also subject to many governmental regulations.
The most basic premise of the binary options market is for investors to make a prediction about the changes in an underlying asset's price. Traders choose an asset that is available on the broker's platform and then they make a prediction about which direction the price is likely to move. They will purchase this contract on an asset, not the actual asset. This contract can be for a week or a month but typically the expiration is much much much shorter time frame such as an hour. The trader observes market changes and watches world events that might have an influence on prices of assets and then predicts the direction the price is likely to move. If they feel the price will increase they purchase a call option; and if they feel it will decrease they purchase a put option. Binary options are short term contracts. The process of trading is simply simple and the quick profitability makes them very attractive to traders.
Binary options are traded on an online platform. This allows traders to trade from any location where there is a computer with internet access. Most brokers do not have any software that needs to be downloaded so just an internet connection is needed. The entire transaction is completed online including the withdrawal after the money has been made. This works to simplify the process of trading binary options even further.
Traders create an account with a broker and then make a deposit. Brokers may require a predetermined minimum which must be deposited before beginning to trade binary options. Some of the more popular brokers have a demo account available for traders to use so that they can learn how trading actually works. This can be a beneficial tool for novice and expert alike. It can be useful for the novice because it allows them to learn how trading binary options works; and it can provide the expert a no risk way to try out new strategies or new asset classes.
The simplicity of trading is one of the reasons that binary options are so popular. But other reasons include limited risks and fixed returns. Before a transaction is completed a trader knows exactly how much they will profit if they make a correct prediction about the market changes; and they know the exact amount that will be lost if they choose incorrectly. There are some limited risks involved as there are with any form of market trading. However, the return from investing in binary options is very good. And while a trader will not make a profit on every single trade it is very possible for them to end up "in the money" enough times to make trading a very profitable experience.
To purchase a contract on an asset, a trader chooses an underlying asset available through their chosen binary options broker. They will then purchase the put or call option depending on which direction they predict the option's price will move. This amount paid on this contract is called the strike price. This will be the price that will be used to determine if the price was above or below it at the time the contract expires. If the trader chooses right he is said to be in the money at expiration and will make a substantial profit. If he chooses wrongly, he is out of the money and loses only the initial investment.
Binary options is becoming one of the most popular types of short term investment options available today.