Binary Options Trading.
This guide explains what binary options are, how they're traded, and which strategies are most successful.
Tim Fries.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University .
Reviewed by.
Shane Neagle.
Shane Neagle.
Meet Shane. Shane first starting working with The Tokenist in September of 2018 — and has happily stuck around ever since. Originally from Maine, .
Updated January 21, 2022.
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Looking to begin trading binary options? Then you’ll be happy to know that these exotic options are based on a simple yes or no premise.
This simplicity makes them popular with traders of all levels across the globe. While their popularity has also attracted some large-scale scammers to the market.
In this guide, we’ll show you exactly how binary options work, and how to protect yourself from scams and fraud. Not to mention highlighting the pros and cons, fees, and most importantly, to help you reach your financial goals, you’ll need to find the right broker.
We’ll finish by taking you through some other key considerations to take into account before you get started. For example, choosing which market to trade binary options on, and discovering which platform will work best for you.
Once you read our guide, you’ll be able to decide whether binary options trading are the best choice for your investing journey.
What you’ll learn.
What are Binary Options? Binary Options Trading in the U.S. Binary Options Scams & Fraud Can You Really Make Money with Binary Options? Example of a Binary Options Trade Options Price and Expiration U.S. Versus Foreign Binary Options The Upside and Downside How To Start Trading Binary Options Get Started with a Binary Options Broker.
What are Binary Options?
Binary options are an exotic financial option where the payoff is either a fixed monetary amount, or else nothing at all. They’re called binary options because this is the only settlement possible.
The premise behind a binary option is simply will the underlying asset be higher than a particular price at a certain time—yes, or no. Overall then, there is a stark difference between stocks and options.
With options, all traders do is trade based on whether they believe the answer to be yes or no. This makes binary options one of the simplest forms of financial assets to trade.
The simplicity of it has attracted and enticed a wide audience of traders of all levels to the financial markets. However, although it seems simple, it’s important to understand how exactly binary options work; which markets and the time frames you can trade in; taxes and regulations; and the pros and cons of binary options.
What You Need to Know About Binary Options
Binary options trading within the U.S is structured differently to binaries available everywhere else. Ultimately, the regulation differs from jurisdiction to jurisdiction.
To help you get some bearings on what this will mean for you, we’ll discuss both binary options and regulations within the U.S, as well as outside. If you’re considering speculating and hedging as an option you should fully understand both potential outcomes for these options.
Traders can profit from price fluctuations in numerous markets with binary options, but you will need to understand the potential risks and rewards of these misunderstood and controversial financial instruments. Binary options and traditional options
trading have little in common, they have different fees, payouts, risks, not to mention a completely unique investment process and liquidity structure.
To help you benefit from binary options, in this guide we will:
☑️ Tell you where they are traded and how you will be protected ☑️ Show you how binary options trading works ☑️ Outline the steps you can take to become a binary options trader.
Is Binary Trading Safe? ️.
The structure and regulation of Binary options differ from region to region. A binary options trader in the U.S will be protected by different regulation to a binary options trade in the UK.
This is mostly due to the fact that: 1) It’s a global market and there is no one regulatory body that could possibly regulate the entire market, right now. 2) The binary options market has grown very quickly in the past few years meaning that governments are still trying to figure out what is best. This has resulted in some regions imposing harsh restrictions and penalties, while others have imposed no restrictions.
Let’s start by giving you a quick outline of these differences by region, before explaining exactly how they work.
Binary Options Trading in the U.S.
While binary options trading is legal in the US, it does have the strictest regulations surrounding binary options which can make it more complex for both the trader and broker. The financial market in the U.S. is regulated by the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission (SEC). Financial service providers must register with these authorities to receive a license to operate in the country.
They also impose harsh penalties should a service provider not comply with any of their rules or restrictions.
Currently, when it comes to legal binary options brokers for U.S. traders, there is only one: Nadex. This is a result of the strict regulatory processes required to obtain a license.
There are no brokers based outside of the US, right now, that are licensed to operate in the US; though this does not mean that they are illegal because there is no law that states traders cannot use offshore brokers or prohibits brokers from accepting U.S traders as clients. Thus, U.S. traders can avail of brokers outside of the U.S. should they wish to do so.
A lot of these offshore brokers do have licenses within other jurisdictions which can be strict and comply with the standards and regulations enforced by the CFTC. As a result, the CFTC will often allow them to be present even without obtaining a license because they comply with the rules and regulations that protect traders.
Binary Options Trading in the UK
UK citizens looking to trade binary options then you will need to obtain a license from the UK gambling commission. Brokers that are regulated by the Financial Conduct Authority (FCA) will offer you that added layer of protection.
You should note, some brokers will advertise that they are a member of the FCA on their website when they are not. For this reason, it’s important to go straight to the FCA’s financial services register to check for yourself.
As with everything, Brexit caused some ripples to the binaries market. Most prominently, the sterling has fallen in value. However, there have been some repercussions for many binary brokers. Before, CySEC had an input in the UK’s financial regulations.
While MiFID 11 guidelines around binaries were going to be enforced in Europe now the UK will have complete authority to implement its own rules. That said, it might decide not to implement any because there is no requirement to.
Binary Options Trading in Australia (and the Rest of the World)
The Australian financial market is run and regulated by the Australian Securities and Investments Commission (ASIC).
