In binary options trading the payout is either nothing or a fixed percentage of an underlying asset. In fact, binary options are of two types: asset-or-nothing binary options and cash-or-nothing binary options. In the case of asset-or-nothing binary options, the trader gets paid the value of the underlying asset for correct prediction. On the other hand, the trader is paid a fixed amount as profit in the event of in-the-money contract expiry.
It is its simplicity that is contributing to a spurt in the popularity of binary options trading. In fact, the trader gets to know of the rewards and risks involved even before buying an option contract. Moreover, binary option contracts can be purchased in both directions of asset price movement. Traders who believe that the price of an underlying asset will increase buy Call option contracts and those that believe the opposite to be true will buy Put option contracts. Most binary options sites offer traditional high/low binary contracts in expiration times that vary from 60 seconds to as much as one hour.
Even before the introduction of online trading, binary options were available for OTC trades. However, these exotic instruments were often embedded into complex option contracts. From 2008 onwards, binary option sites that offered platforms for carrying out trades became available. These sites offered a simplified version of the binary options that were traded only in exchanges till then. As of now, more than one hundred binary options sites are in operation and they offer more than one hundred assets from all the asset classes (stocks, currencies, indices and commodities) for trading. Further, the binary options offered by these sites are standardized with pre-determined rewards and risks. These option contracts cannot be liquidated before expiry.
Typically, binary options sites do not levy any fee for opening accounts or conducting trades. They earn a differential income depending on the number of contracts expiring in-the-money and out-of-the-money. On the other hand, traders have to predict correctly for 54.5 percent of the time in order to earn incomes on a long-term basis. Additionally, the payouts provided by the binary options site for successful and unsuccessful trades also have a bearing on the ability of traders to earn an income.
In view of the proliferation of binary options sites, countries around the world have started implementing stricter regulatory environment so as to prevent scams. The process of regulating binary options platform providers was initiated by the Cyprus Securities and Exchange Commission (CySEC). Subsequently, many countries have started implementing the same for their markets. Regulated binary options brokers offer a safe and secure environment for binary traders as they are required to keep their funds and that of traders in segregated accounts. Regulation also ensures legal protection for traders.
As of now, the binary options market is witnessing a boom as it provides traders with an opportunity to invest in markets around the world and even hedge their risks in traditional financial markets. As a result, many players have come into the market offering platforms for trading binary options. This can be quite overwhelming for traders, especially those that are new to binary trading. They will find it difficult to identify the best binary options site on which they can open a trading account. Here are some guidelines on how to choose the best binary options sites:
#1: Traders wanting involve in in binary options trades must choose binary options sites that offer at least 65 percent to 70 percent payout for in-the-money option expiries. Here the amount by which the asset’s price changes is not an issue at all. However, the price of the asset should have increased/decreased by the expiration time as predicted by the trader. Otherwise, he/she will not earn profits.
#2: It is important to choose a binary options site that offers to return a part of the money invested in a trade if the contract happens to expire out-of-the-money. This is because the trader will be in a position to reduce his/her losses even if the prediction is wrong. Some binary options sites offer to return as much as 15 percent of the investment in a trade for out-of-the-money outcomes.
#3: The number of assets offered for trading is also an important aspect to be taken into consideration when choosing the best binary options sites. Typically, the platform provider should be offering a minimum of 70 assets pertaining to different asset classes for trading.
The platform should enable the traders to deal in at least in USD, GBP and EUR. Of course, the minimum deposit to be made in order to start trading should also be considered. There are binary options sites that allow traders to open an account with a deposit of just USD 100. Generally, there are no charges or commission to be paid at the time of depositing funds or for conducting trades on the platform. However, some platforms may charge fees when withdrawing funds from the trader’s account. Some platforms even specify the minimum amount that should be withdrawn. Therefore, prospective traders must go through details related to the deposit and withdrawal policies in detail before making a final decision on the platform to conduct their binary trades.
#4: When it comes to depositing funds into trading accounts, the binary options platform provider should allow traders to transfer money in a currency of their choice.
It is important to verify the security system offered by the platform for carrying out online money transactions. Prospective traders must ensure that the platform that they chosen to work with offers 128 bit SSL encryption from a leading provider. This is a very important as it protects traders against online theft.
Finally, another important aspect to be considered is the customer service facility offered by the binary options sites. The platform must have the capability offer customer service in multiple languages through email, live chat and telephone. Many of these websites have local helpline numbers to help the customers from each country they service.