This guest article was written by Rosemary Barnes who is a business writer specialising in binary options and forex.
The rise of binary options in recent years has been nothing short of remarkable. Five years ago, Forbes carried an article entitled “Don’t Gamble On Binary Options,” which referred to binary options platforms as “gambling sites…probably just a matter of time before regulators move in on them.” Although the article went on to refer to the industry as a “financial wild west,” it did acknowledge that until that happens, they seem to be doing great business.
Fast forward five years, and yes, they are still doing great business. But are binary options just a craze set to fizzle out as quickly as they burst onto the scene? Many people are under the impression that the recent boom marked the start of the industry, but the origins of binary options trading dates back a lot further.
Binary options were originally traded at exchanges and it is still actually possible to trade them at exchanges such as the Chicago Board Options Exchange. However, it was 2008 that marked the start of the industry as it is today when it became accessible to retail investors via online trading platforms. This was after a ruling by the Securities and Exchange Commission in the U.S. stating that binary options no longer had to be traded on an exchange.
A number of online brokers emerged, making binary options trading mainstream and more accessible. The digital age thus arrived, and revolutionised the financial markets, while simplifying the route for binary options into the financial world.
The binary options that we know today have a reputation for simplifying the trading of currencies, commodities, stocks and indices. When trading binary options, traders have an easy, clear-cut choice to make between two possible outcomes. Binary options expire either ‘in the money’ with a successful trade or ‘out of the money’ with an unsuccessful trade. If a trader predicts correctly, they will receive a predetermined return on their investment, usually up to 85%.
Not surprisingly, this kind of trading has proved very attractive and is regarded as an easy way to make money online. With a large range of different expiry rates at their disposal, such as the popular 60 second options, traders looking to capitalise on short-term market trends can make a profit within minutes of a win or loss.
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The opportunity to make high profits in a short amount of time is undoubtedly the main attraction of binary options. The other advantage of binary options is that traders know the potential risks involved before they start the trade.
There is of course, a downside in that as well as being able to make a lot of money in a short time, you can also lose money. Traders can lose up to 95% of their investments in a short time if they make a wrong prognosis, as binary options brokers only return between 5% and 15% of the investment in the event of an unsuccessful trade.
Another downside is some of the marketing tactics used to attract clients such as giveaways like iPads and reward schemes such as 100% deposit bonuses. Many traders who accept these kinds of rewards usually end up losing their money because brokers prevent customers from withdrawing money until a certain volume of trading has been achieved, typically x30. This means traders have to generate thousands in trading turnover.
Some of the bad press they have received has been partly down to the fact that some of them promise traders unrealistic expectations. Unknowingly, a lot of people sign up and end up losing all of the money they have deposited and don’t realise that they have to put in a lot of effort and research to be successful.
And last, but not least, despite the fact many binary options brokers are now regulated, there are still plenty of unregulated or offshore-regulated ones who use underhand practices or have little experience in trading the markets.
Cons aside, binary options are immensely popular and have undeniably become a mainstream online trading activity. The truth is, most binary options brokers are legitimate businesses and as more and more brokers become regulated, we should expect to see fairer services in the industry.
The emergence of binary options contracts with longer expiration times of up to several days or weeks is another positive, as they offer traders higher winning opportunities since they are able to predict the future movement of assets with more accuracy over a longer time frame.
The growth of binary options has indeed been remarkable and looks set to grow even further. With more and more brokers entering a highly lucrative market and no shortage of traders wanting to seize their share of the profits, there’s no doubt that binary options will continue to do “great business”.