Binary options is a new financial product that many investors discover nowadays. And a few years ago no one talked about them as an investment product for the public. Of course binary options have been known to Wall Street traders for over twenty years. As a matter of fact binary options were invented just a few years after the Black & Scholes model and they have been part of derivatives structuring ever since, often embedded within complicated structured trades. Binary options are part of so-called exotic options, which are the most complex of options and started in the 1980′s.
But never before were binary options offered to the general public with such ease of use. This is the benefit of third generation Internet products were trading these instruments is simple and safe. So for all of you who recently got introduced to these binaries, what are the benefits of trading them versus more traditional vehicles, such as stocks, futures or forex?
Binary options are global. From any binary option platform you can trade stocks, indices, commodities or forex directly. But try to do the same thing from your bank or stock broker.
No other service will let you trade all these assets so simply from the same online software. Stocks are normally traded in local stock markets. So for example if you want to trade IBM this is traded on the New York Stock Exchange, but if you want to trade Societe Generale instead this is dealt with on the French stock exchange. Stock indices themselves are not traded on any of these stock markets as they are in the form of futures, which are traded on futures exchanges, and each country has its own futures market. Unless you want to trade an ETF instead of the real thing, but here again these are traded in different markets.
Likewise commodities are traded in various futures markets such as the NYMEX in New York for crude oil or the CBOT in Chicago for gold. Finally the FOREX is a market on its own where real-time prices are determined in the interbank market where the largest banks participate. And there are futures as well, which follow the interbank market.
No private investor could trade all the above market from one single platform before. This is what binary options let you do, as all these assets are gathered under one roof and you can choose to take a position on any underlying asset very simply, with just a few click of the mouse.
Binary options are short-term. Another advantage is that these products are very short term in nature, usually a few days, but they can be as short as a few hours or even a few minutes.
This means that after you put up a trade, it will unwind rapidly. One of the issues with investing that everyone is aware of is sometimes traders get married to a position so to speak, especially when it is a losing position. Also it is always clear when you start a traditional position, but when you exit it is the biggest question mark. Do you take a stop loss? Do you have a profit target? Is it for the long-term?
With binary options you are in and out swiftly so that the choice of how long to hold the position is made for you already.
Binary options have fixed-odds. Fixed odds means that you know your risk and your possible profit, exactly.
And there is no other instrument where you know precisely how much you will make if you are right and how much you will lose if you are wrong. Because markets always fluctuate on a daily basis, and your portfolio too. But this is not so with binary options.
By nature binary options have only two possible values at expiration, and these numbers are known before a trade is made. This is a great feature as it will eliminate any element of surprise in your trading decisions.