Binary Options - What are they and how do they work?

AsstModerator

FPA Forums and Reviews Admin
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5,536
Binary Options
What are they and how do they work?

FPA HQ has gotten this question and I've seen it come up in the forums. An FPA member requested a dedicated thread just for the topic, so here it is.

Please note that this thread in is General Forex Talk. Advertising is NOT permitted here. I chose this folder so that the topic can remain on what Binary Options are instead of discussing specific brokers.

Broker reps may post here, but only to provide information about the general topic of Binary Options.

Please don't post specific broker recommendations, advertisements, or affiliate links in this thread. Spam Cat is hungry and is always on the prowl.

I don't know a lot about Binary Options myself. I'd appreciate more information on the topic.
 

FreddyFX

Sergeant
Messages
359
GREAT !!!

I have been wandering around the internet about this subject and still have no clear clue.

So far it has given me the insight that there are a TON of brokers offering it, most are from shady places in the world.
People get lured in with HEAVY bonuses, which you cannot take out till you have traded like 15X the amount, so it will take a LONG time before you can really have an advantage about those.
 

FreddyFX

Sergeant
Messages
359
Another matter that I have found out is that their data feed gets manipulated by themselves.
If you run their data next to what we are used to in forex, you will clearly notice this !!
 

Siddharth

Private, 1st Class
Messages
75
Hello Everyone, I am a binary trader from January 2012. This business is very unique as it is very simple to understand and return is massive and sometime about 500% on your initial investment (depends on your broker). To trade there are two basic types of binary options. The first, called a call, is bought when the trader expects the price of that option’s underlying asset to go up. If a given trader expects the price of that option’s underlying asset to fall, they would buy a put. With each binary option, there are two key pieces of information to remember. First is the strike price. This price level determines whether an option expires in the money or out of the money. Second is the date and time of expiry. With binary options, expiration can be as short as a few minutes and as long as several months. I am going to list some of the advantages as well as disadvantages of trading binary options.

Advantages

Your risk is defined which means you could only loose whatever you have invested.
No margin call or trade closure by broker before expiry time.
High return in very short time.
Profit from rising and falling market.
No spread so you could win even with .1 pip

Disadvantage

All most all of brokers offering binary options are not regulated.
You could loose all of your investment in few minutes.
Most of binary option brokers are illiquid and are bucket shops.


Things to consider before choosing option broker.

Till today option brokers are not regulated but some brokers are making efforts to be regulated by Cyprus Securities and Exchange Commission as most of brokers dwells in Cyprus. Only one broker is regulated by ASIC but my personal experience with them is not very good. You could search about them online. Do not invest your money if your broker claims following things :

We are market makers, Some OB (option Brokers) claims to be Market maker which is totally wrong and misleading information to traders.

If they claim to buy binaries from bank and sell them to you in which they get commission. No bank offers binary trading except some bank offers vanilla option but they are totally different from binary trading as their time period is monthly or at least weekly.

If they claim to be regulated by National Swiss Bank. Since when SNB become regulating agency for OB.

If they claim to be regulated by Reuters. WRONG ! Reuters provides platform for interbank trading as well as provides real time market data feed for various assets and is not a regulating agency.

Some broker write this statement "option price/quotes that is offered by us is not necessarily the real time of the underlying asset but rather the price that this broker is willing to offer the relevant option" This statement means that you may or may not get fair market price during expiry, fair market price is very important because you may loose big chunk of money with just with 0.1 pip although the real market price was in your favour.

Conclusion:

I have personally tried 5 different brokers (SS are available if anyone like to cross examine) and have concluded that till now OB don't offer transparency, fair option expiry price as well as funds security. You can pick different brokers and compare their expiry price and all of them would be having different expiry rates, even though most of them gets their feed from Thompson Reuters. We as a traders have to wait little more time for this business to develop to a point where we have sense of security and freedom to trade without fear.

Please feel free to comment since Sharing is caring.

Till next time.
 
Last edited:

FreddyFX

Sergeant
Messages
359
VERY nice post and you took a lot of time to state the various info.

For the totally newbies: most BO brokers have some sort of manual on their website.
Download such a manual and start reading

PLUS

many offer also DEMO accounts nowadays.

I TOTALLY agree with the writer above: BE CAREFUL !!

You will loose your money almost as fast as in a casino, lol, if you cannot control any MM.
 

Audrick

Recruit
Messages
2
Excellent article! Every prospective Binary Options investor should read this before investing. Thanks a lot!
 

dragonboy

Recruit
Messages
7
Great to see this thread. We have been demo trading for a few months and going quite well..not quite well enough to go live just yet.

My wife belongs to a trading group where 5 or 6 people have been using options. Of them all bar one are using 24options and two have taken out profits with no problems. One comment they all make is to avoid using any of the special offers that many brokers tempt you with. I also keep an eye on http://www.binaryoptionsthatsuck.com/ The site name may not be the greatest but they seem to be doing a worthwhile job as scam watchers.

I have no affiliation with 24options or binaryoptionsthatsuck. It seems that binary options is like other trading. It looks easy but the more you look into it the more you realise how hard it is.
 

FreddyFX

Sergeant
Messages
359
I think the basic idea was here NOT to mention or advertise for any brokers !!!!!!!!!!!!!!
Explanations on how this all works do NOT need to have names of brokers mentioned.

So I would like the MODERATOR to act on this, as I can post a list of brokers with ALL sorts of explanations !!!
 

Pharaoh

Colonel
Messages
19,722
Some info I've been able to gather is that most of the Binary Options brokers are really based in Israel. The offices they claim in other countries are usually virtual offices or else are a minimal presence. Also worrisome, many of the Binary Options companies seem to be owned by companies that also own online casinos.

The number of complaints in Scam Alerts about this sort of company seems proportionally higher than retail forex.
 

Mc Pee Pants

Recruit
Messages
1
Hi there, I have been quite interested in trying out binary options, how ever every time I sign up onto a website, I feel like I have the support team phoning me every ten minutes trying to get me to deposit my life savings. The majority of the brokers I have signed up with are like vultures. How ever there was one or two platforms that were a pleasure to deal with. I am not here to advertise though.
I will let you guys know how my quest goes. Keep it real...
 
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