Perhaps you've been searching for something on Google lately and come across one of the many thousands of advertisements for binary options. Back in 2008 this was an uncommon site but now with over 100 online binary options brokers competing for your attention, your chances of not seeing any of these ads has dropped substantially.
In 2008, a new investment vehicle started taking off. Binary Options were touted as a quick way to profit off of short-term price fluctuations on the many assets the brokers chose to offer these options. Using an over simplified platform, the brokers have basically gotten binary options trading down to a four-step process, making them easy to understand for even the most novice investor. But can trading, one of the most difficult activities to do consistently as millions of people around the world know, really be as easy as the banners and advertisements are making it seem? Let's discuss the steps first just to see how easy they've made it. The four steps are as follows:
Step One - Choose an asset
The first step in the process then is to choose an asset. Most brokers these days offer well over 100 of the most popular assets to choose from. Binary Options traders can choose from assets such as Google, Microsoft, Gold, Silver, Oil, the FTSE, currency pairs and so on. The hardest part is selecting an asset that interests you.
Step Two - Choose a direction
The second step is where the binary options brokers have placed the most emphasis on ease. They like to claim simplicity in that trading is as simple as choosing up or down. Of course, we as investors and traders know there are tens of thousands of attributes and aspects that can affect a trade but for the purposes of binary options trading, the brokers really only discuss the need to choose between up or down.
Step Three - Choose an expiry time
The third step involves the trader choosing the time that his or her binary option will expire. These times can range from 60 seconds to 3 months. Trading stocks, commodities, bonds and binary options requires a sense of timing. Having an idea of the history of the asset you have chosen to trade can give you a better understanding of potential short-term direction which in turn affects your decision as to how long you should allow your binary option to run. As with the other steps of the process, it is entirely up to the trader.
Step Four - Choose an amount
The final step for the binary options trade is for the trader to select an amount to apply to the trade. Most binary brokers offer trades as low as $5 and many allow trades in excess of $20,000. It is completely dependent upon your own risk management and trading goals. Once you have chosen the amount, the potential payout of that trade is given to you before you ever place the trade. Many people claim this offers a safer way to trade as binary options payouts are predefined but that is up to the trader.
What one has to realize with binary options is that the actual underlying stock, commodity or currency is not actually being traded. You are trading based on the current trading price of an asset and nothing more. When you trade a Google binary option, you do not own Google. For that reason, it begs the question whether trading binary options can actually be classified as 'trading' or if it is something completely different. Something that can be found in any casino. Whether or not the online binary options trading community can be classified as traders or gamblers is a completely different article.