World of finance is a complicated place. For an outsider, the numbers, symbols, terms, and news about finance, seems like a foreign language. Most people in the world, shy away from risking their money on things they don’t understand. But, the world of finance has made a lot of strides in providing simpler and simpler forms of investments to the interested masses. One of the easiest to understand and take part in markets is the binary options market.
What Exactly is it?
To understand how to properly make profits in this market we need to understand what binary options are. A binary option simply put is a derivative or a financial instrument that determines the results based on a yes or no question. When purchasing a binary option, you will be answering the question of whether a certain asset will increase or decrease in value in a predetermined time period. Interesting enough, binary options are one of the only investment methods that tell you exactly how much you will win or lose before you purchase a position.
The ‘option’ that you are purchasing or selling in a binary options trade answers the question if market or asset X will be above the Y asking price at Z time. If you believe the answer to this question is yes you buy the option and if you believe the answer is no then you would sell the option. Before you buy or sell the option, you will be able to see how much your investment stands to provide in returns, and how much you will lose if and when you guess incorrectly on the binary option.
This truly is a unique feature of binary options and the reason that most people compare them to gambling. The all or nothing nature of binary options is a rarely seen thing in the world of investments, where most investment methods provide partial returns and losses and you will never know before investing how much the payout or the losses will be. This feature might seem like a gamble to most but to others it’s a way to curb their risks, knowing how much you have to lose can bring a certain sense of relief, that you cannot lose more than what you invested.
How is a Binary Option Regulated?
Most of binary options trades happen outside of the United States. Due to the gamble like nature of these investment types, the US government has very strict restrictions in place to prevent traders and investors from being scammed of their money. There are a few SEC or CFTC regulated binary options exchanges within United States for interested investors. These restrictions and regulations can have a negative effect on the market, but for the few who do invest in binary options, do so with confidence that they will not be robbed or scammed.
Europe has its own regulating bodies like MiFID. In the summer of 2018, the European Securities and Markets Authority (ESMA) implemented a ban on almost all forms of binary options for retail traders. Much like USA the European market regulators provided a few different methods of being able to get back into binary options markets, like creating a professional account or purchasing of alternative but similar products like Knock-outs and FX Options.
Where ever you might be, it is crucial that you find the right and safe place to invest in the binary market.