Binary Options: Living Up to the Hype

You have probably seen a number of stunning advertisements that are promising astronomical short term investing opportunities using the web for financial and investment information. Some of the most recent claims were: “up to 95 percent profit in one easy trade,” “Earn up to 85 percent per trade,” and “Win up to 88 percent per trade.” Does the binary options world live up to the hype? In this report, we are going to explore this question.

What is a binary option ? Perhaps the word “option” should be defined first. One option is simply a financial agreement, when we agree to buy or sell any kind of asset within a certain timeframe at a certain price. Options fall under the category of derivatives because such a deal has a value without the asset itself being actually held. For example, if you are a member of an Apple or Google option contract, this contract is valuable on its own despite not being an equity owner. The mere fact that you have a future purchase contract or sale of shares is of itself worth. Option contracts expire, depending on the details of the contract, at any time in the future–minutes, time, weeks, month or even years. An option contract is valid upon expiry. Those who invest in options have to do something, buy or sell with them before they expire.

A binary option is a highly specialized, uncommercial option contract. The purchaser simply keeps this type of option until it ends with a predetermined profit or loss. Publicity describing a 90 percent profit simply describes an optional deal whereby a profit or loss of 90 percent is generated if it is performed in the way you predict. For example, the Industrial Average of Dow Jones opens at 16.501. You think that the end of the market will be higher. You therefore decide to purchase a $500 telephone call option with a day off. The day ends with the closing of the Dow at 16.502. Your contract for options is valued at 90 %. Your $500 is therefore worth $950. If the DOW closes, the contract will be lost and the majority of $500 lost. Some brokers are giving you 15% of the losses. But this option is binary in nature, that means that at the time of expire you are either gaining or losing. Some described this sort of option, such as throwing red or black money into a casino. This is an excellent description. However, most investors want to believe that they are much more skilled than the casinos player.

Binary options exist as private over – the-counter deals over many years. These exotic options were introduced to the public in 2008 when dealers began to offer online. There are today dozens of brokers specializing in this exotic choice. Most are offshore locations, such as Cyprus and Britain’s Virgin Islands.

Are binary alternatives legal? The answer is not easy, like most areas of law. Most binary options brokers operate outside of securities regulatory competence. Some of them work under the licenses for casino gaming. The CySEC (Cyprus Security and Exchange Commission) has now been established in an effort to regulate the industry for brokers in that field. A relatively new broker named NADEX (North American Derivative Exchange) is available to the United States. The Commodities and Futures Trading Commission, a government agency similar to the Securities and Exchange Commission, is completely regulated in this enterprise The binary investment option is so new that it takes some time to see how the regulatory environment actually develops. It is certainly fair to say that the legal trend is towards fully regulated companies, which offer eager customers exotic investment opportunities in each jurisdiction.

Let us look at the downside before looking at the upside of binary options. Investment of exotic options is not traditional investment. Some people say it’s very like gambling. I like the analogy red / black wheel. If you purchase a binary option contract, you either gain or lose, depending on the expiry time of the deal. Many options brokers are currently promoting 60 second contracts. A fair evaluation would be to call such a contract a gambling hybrid. It could in fact be claimed that any investment on Wall Street is really only a complex gambling scheme.

Unlike conventional option deals, where a certain number of shares are controlled by each contract, no binary leverage exists. You are unable to use this type of option. You therefore have no right to the underlying property. The option is used strictly to provide holder income.

Binary options are no liquidity. There are no markets for the sale of these unforeseen agreements. You are for the duration once you purchase the contract. Some brokerage companies begin liquidation experiments, either offering to buy back some of the agreements in certain conditions or finding buyers prepared to take on unexpired agreements. It is interesting to see how the industry develops in such an aftermarket.

The losses have to do another downside for binary options. You have to be a skilled investor with a high earning to loss proportion, in order to really make money in the long run. Because you lose really large upwards of 90 percent with these options. Some brokers have returned 5% to 15% of losses now. Probably this is just a marketing effort to keep you on with it. But it may be helpful in another business depending on the size of the account and the size of your business.

The mainstream financial media unfortunately has little to say on binary contracts. Dr. Jon Najarian, host of “Fast Money,” CNBC TV program, calls binaries “training wheels” to engage in traditional choices. Najarian says that binary options would be widely appealed by “individual investors, hedge funds and institutions, who have an opinion, one way or another, on future price movements.” In 2010 Forbes magazine published an article “Don’t Gamble on Binary Options” The author Gordon Pope spent two pages persuading the readers to remain out of binary options. “If people like to play, this is their choice,” he concluded by saying. “But let’s not confuse that with investing. Binary options are crap, straightforward and straightforward.” Pope unluckily puts binary options under such a negative light. He doesn’t mention that practically every type of investment is a crapshoot.

Now we’re talking about some of the binary options trading pros. First of all, they are an excellent and simple way to become exposed to different markets, such as stocks, commodities, forex and other similar products. Binary options really make commercial markets possible for anyone. Some of the brokers also open accounts of 100 dollars and let you try out 10 deals. Again, almost anyone has the opportunity to participate.

Binary trading options are an excellent way of testing various trading policies without risking huge amounts of money. This type of option account may open in minutes without requiring extensive questionnaires, approval and cumbersome procedures, such as a traditional options account. Many brokers accept credit cards and your favorite online method of payment. Wire transfers are also available from your bank. Because most of these option companies are offshore, opening an account at one of these locations is an easy way to set up offshore funds.  A huge upside potential is the most obvious benefit of investment in binary options. Where else can you get+ 80 percent returns in such a short time? Do binary options therefore live up to a hype? The answer depends on how they are used and how a binary option investor is successful. The underlying market conditions of course also play a big role in whether or not a certain binary option agreement is profitable. Basically, binary options are a very profitable short-term profitable investment vehicle.

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