Options have been around for a long time. When you trade options you trade either call options or put options. A call option is a contract that makes money if the underlying price of the asset goes up. Conversely, a put contract makes money when the price of the underlying falls. Regular options could be used as an opportunity to hedge your positions and protect your portfolio from any major falls or merely as a speculative tool. The bottom line is that options are difficult to learn and can take years before a trader has the proper level of confidence to trade options successfully.
Then in 2008, the US Securities and Exchange Commission (SEC) approved a rule change by the Options Clearing Corporation that effectively allowes traders to use binary options as a regular investment vehicle. Since then, we have seen an explosion of online binary option brokers with a variety of new tools and indicators to go along with it. These days you are able to trade binary options for indices, large corporations, commodities and forex. However, the real appeal of binary options comes from its simplicity and possibility of reeling in 80%+ returns within an hour. That’s right I said an hour.
Here is how they work: once you login to your broker’s website and go the trading page, it shows you all the different types of options you can trade as I said above. Let’s say that you wanted to trade the S&P 500, you would move over to the S&P contract where there is an up arrow with the word “call” in it or a downward arrow with “put” in it. Essentially, you open a trade when you click the up or down arrow, depending on where you think the S&P 500 will end up in the next hour or so. Once the time limit is up, if your prediction was correct, you receive returns of up to 100%. It is pretty neat to think that original options were extremely complex but now binary options are so simple that anyone can do it.
Before you click away and begin opening a brokerage account at a binary options site, heed these warnings. While binary options sound simple and can yield you a nice chunk of money, they do not come without risk. The odds of winning are 50-50, obviously. However, these are the “gambler” odds if you simply just placed a trade. If you take some time to do a little research, the odds begin to tip in your favor. The point I am trying to make is do not place trades without some sort of research first, otherwise you are simply gambling. If that is what your goal is then perfect but if you are serious about making money in binary options, I suggest using technical analysis. I like technicals for binary options because the timeframe is so short. If you look at a 30 min or hour chart, you could pick up on short term patterns or indicators that could help point the way.
The bottom line is that binary options were created for the common man (or lady) to engage in a simplified form of options trading. While you face different risks than regular options, it is just as quick to lose money. If you choose the gambler route of trading, I can almost guarantee that you will have a net loss by the time you are done. However, if you use some basic technical analysis the odds begin to go in your favor. Research is a must when it comes to options.
About Matt Rego
