A binary option also known as ‘digital options’ or ‘fixed return options’ is a financial option offering online traders an opportunity to buy price fluctuations in a several global markets. However, as a binary options trader in South Africa, you need to understand the risks and the benefits of binary options. These misunderstood instruments are totally different from traditional options and forex trading. Don’t get it mixed up.
But the question is, what exactly is binary options? In this financial option, the payoff you receive is either a fixed amount or you receive nothing at all.
Most South Africans get confused when they think of binary-options. Binary is for two choices. Either up or down. Meaning you get a binary when you bet down or up on a product. The binary product could be crude oil, share of a company, stock or gold. Values of binary options don’t stay the same everything, they change because this financial market is controlled by the law of “supply and demand”.
Professional software are put in place to the work on behalf of the traders. These robots are most common to Binary options beginners. These robots follow a specific algorithm which allows them to always analyze the markets and be able to take the right position at the right time.
Understanding the law of the market means understanding the offer, the demand and how the prices come about. For example, the more expensive a product is, the more expensive it is.
Demand: Imagine you want to go to ‘Justin Bieber’s concert’, think of how much a ticket will cost you. Since Justin is one of the most popular musicians across the globe, the ticket will be more expensive because he is in high demand.
Offer: Since Justine is in high demand, the offer is limited because he can only hold just a few concerts per year. The supply is limited and the strong demand makes the price to increase.
Price: The price is determined by the number of followers Justin has on social media and how much his net worth is or how many digital sales or physical copies he sold. Therefore, the price is determined by supply and demand.
The same example we have used above also applies to crude oil. Oil is a scarce and limited resource which makes it to be more expensive and in high demand. Come think of it, most scarce products are the most expensive ones. Products or resources that are in abundant are cheap.
Binary options are easier to trade than the stock market. It is simple to trade from a low amount as little as $100 whereas on the stock market, you can start from at least $10 000 to be able to make money without having to pay too much for the bank commissions.
For people who are interested in binary options, there are online training guides and video tutorials designed to help beginners. The guides cover topics such as “how to speculate Binary options and how to predict if the options will go down or up.
Binary options history begins with the development of many financial products that are created to attract people to investments by simplifying the trading process and the decision making.
The exotic options called binary options are traded regularly for years in other forms of trading but made available to the public and through brokers only a few years ago.
The following paragraphs provide you some understanding of the binary options history and can be used to broaden your perspective about binary options.
The beginning of the short history was in 2007 when the Options Clearing Corporation proposed to regulate binary options trading. The proposal was sent to the Securities and Exchange Commission which in turn approved and regulated binary options trading in 2008.
May 2008 was the first introduction of regulated binary options by the American Stock Exchange ( AMEX ). The binary options products they launched were European style cash-or-nothing options which means that these were binary options with a monthly expiry and about 3.5 weeks of available trading. The prices were calculated using the Black-Scholes formula and were very static in nature.
In June 2008, the Chicago Board Options Exchange ( CBOE ) also introduced binary options as part of their offering to financial institutions and companies. Both AMEX and CBOE issued binary options with a value which was between 0$ to 1$ with a multiplier of 100 as the base binary options. Getting quotes on binary options was a complex matter and could take even a day and therefore in order to be profitable to the issuers of the options, they only accepted big deals of large amounts. It became clear that this fascinating new tool that was used by the professionals needs to evolve and to be introduced to the public as a standard regulated simple way to trade.
2009 was the year when the desired development occurred in. The North American Derivatives Exchange ( NADEX ) introduced binary options tools that enabled the continuous pricing of the options and the automatic selling of over the counter binary options. This major development was available through NADEX’s on-line platform. Not long after, many broker companies started to sell over the counter binary options with continuous pricing through automatic on-line platforms and the binary options market evolved to where it is now with dozens of brokers and millions of traders creating a volume of hundreds of billions of dollars a month.
Just like forex trading, binary options also has some advantages:
Choosing a binary options broker is not as trivial as it seems. Choosing the right binary options broker that fits your investment influences directly on your performance. In the past there were several binary options brokers that did not comply with regulatory requirements and were marked as scam and fraud. All binary options we list on Binary Options Academy are verified brokers and should be safe to trade with.
So what are the differences between the brokers that make it essential to evaluate which brokers are the right brokers for you?! Binary options brokers differ in investment conditions, deposit promotions, payout, available assets, trading hours, customer support, trade room support, education and courses provided, alerts, VIP level qualifications, user interface, and more. Don’t get too confused, here is our elaborated guide to choosing the right binary options broker for you.
The first recommendation is not to put all your eggs in one basket. Use the guidelines to choose at least two brokers to work with and split your investment between them. If you choose to invest 1000$ for example, you can choose to invest 500$ with each broker or split it unevenly based on the advantages you see in the offer of one of them. Using two brokers can give you the flexibility to use the resources and benefits of the different programs they offer, to get guidance from two separate trade rooms and to have redundancy if one broker experiences technical difficulties of any kind. At the end of this guide, your task should be to choose the two brokers you think fit your portfolio the best.
Investment conditions – The investment conditions are comprised of the minimum and maximum deposit amount, the minimum and maximum trade amount, and the available binary options deposit methods. You want to choose a binary options broker that accepts your deposit amount and that appreciates it. If you allocate 250$ for your initial investment find a broker with a minimum deposit of 200$ or less to make sure you are not categorized as a user who deposited only the minimum amount. A trader that is classified as a trader who only invested the minimum required will get less support and attention from many brokers who focus on the bigger traders that yield more volume and more revenues to the broker.
The maximum deposit amount is relevant when a broker limits your deposit amount and you know you plan on deposit more than the specified amount in the future. The minimum and maximum trade amounts control your trading behaviour as a binary options trader. You want to choose a binary options broker that gives you the freedom to trade on 10$ or even less as a new trader and to trade on 2000$ per trade when you are more experienced and when you have more than 50,000$ in your account. The deposit method support relevance is obvious. You need to choose a broker that supports your favourable deposit method to ensure secure and smooth transactions.
Deposit promotions – The deposit promotions are significant when you choose your binary options broker as some brokers can even match your deposit with a bonus. In other words you deposit 2500$ and your account balance is 5000$!!! The promotion means you can generate much larger trading volume with your initial deposit hence you get more practice and more potential to generate significant profits from your deposit. Important notice: each promotion has its condition and it is imperative to review these conditions as they often include some restrictions on deposit, or state that the bonus cannot be withdrawn at all (non-redeemable).
Payout – The payout of a binary options broker is the actual profit potential from every trade. Most binary options brokers have different payouts for different assets and different option types. The payout states what is the profit we take if we succeed in our trade in the form of a percentage value (80% for example). There are cases where the payout returns us some of the money in cases we lose a trade (15% for example so our real potential loss is only 85% of the trade). We should always consider the payout value when choosing a binary options broker and make sure we get the best payout condition for the assets we trade on.
Available assets – The nature of trading for most traders include a small limited number of assets they deal with. These are usually assets they know about and make sure to get follow their graphs and to get updated with relevant information. When choosing the right binary options broker you should make sure that every broker you work with has trading options for the assets you want. You can lookup for the broker on Binary Options Academy and find the relevant information and get to the broker’s platform to review the assets list.
Trading hours – The trading hours of binary options are influenced by the market (activity hours) but also by the brokers because trading for a long term option can be executed even when the markets are closed. When evaluating the brokers you need to make sure the trading hours available are adequate for your plans.
User interface – the user interface (overall look and functionality) of the broker’s platform determines how easy it is to trade, how functional their service is, and what are the offered tools to assist you in getting the right trading decisions. In binary options it is very important that the buttons will be big and clear to make sure you can act fast and respond to the market’s movements, and that the graphs are accurate and easy to understand. Other user interface factors can be the amount of visible assets per page and customization options so that you can create your own dashboard and have easy access to all your assets from one window. You should decide which brokers offer the most user friendly environment and take it into consideration.
Customer support – The service the broker provides does not end up in transferring the transactions or manage your account. Brokers need to answer your questions regarding payments, withdrawals, platform functionality and technical problems. The ability to ask questions or get problems solved for you asap can make the difference between a good service experience and a bad one. You want to choose a broker that offers support in your language and at the time you usually trade. Some brokers offer a “call me” button and guarantee an answer in less than 10 minutes at working hours.
Trade room support – While the customer support deals with payments, deposits, and technical issues, the trade room support is dedicated to provide you with the guidance and information you need for your trading. Choosing a binary options broker that gives you the training, the support, and the tips for your assets on a regular basis, is the best choice a trader can make. Usually the trade room of a broker has the perspective on the market and also sees all transactions that are performed on a specific asset so that they can lead you and give you directions for the short term and for the long term to help you and to increase your chances to gain profits. Make sure you use the trade room support and that you open each session with a short conversation with a senior trader from the trade room.
Education and courses provided – Every broker has its policies regarding education material (like e-books), courses, and professional training with a senior trader. For new traders it is crucial to find a broker that has experience with new traders and that has the relevant material in your language. A professional training with a senior trader about technical analysis for binary options, about the different tools, and the available resources can improve your trading success dramatically.
Alerts – Alerts are the short real-time updates on the market or an asset. An alert can direct you to perform a trade you could not think of by yourself or even notify you when you are away from the system and something significant happens. There are many alerting mechanisms used by the brokers. Some brokers have an alerts window available as long as you are logged in to the system, some use your e-mail or even your mobile phone (SMS or notifications), while others can call you as a premium service to notify you when something big happens. Experienced binary options traders make sure they know of relevant developments but use the alerting mechanisms to remind them or to get information about assets they usually do not trade on.
VIP level qualifications – Just like in every bank or financial institution, binary options brokers have a VIP class for their clients. The VIP clients get better service and response times, get more training and tips, and overall more attention from the broker. To qualify for the VIP level traders are required to invest a minimum deposit or to generate a minimum volume. We highly recommend you check with your brokers what the qualifications for the VIP class are and consider this option seriously. VIP class service can get your profits higher and give you better promotions.
Withdrawal process – Binary options brokers are required to inform you what are the terms, the process, and the timing for a withdrawal. If from any reason you decide you want to stop trading binary options or that you want to realize some or all of your profits, you need to be confident that you get the money on time and that the broker supports withdrawal method that satisfies you (bank transfer, credit card, electronic wallet). If the information was not sent to you, make sure you check the FAQ section of the broker or ask the customer support for these details.
One of the most asked questions is “is binary options” legal? Well, in some countries such as France, binary-options is illegal. Most binary options brokers that you come across with on Google are operating illegally. However, binary has become legal in some parts of the world and are regulated. The regulators make sure that you receive quality services and you are safe online.
Withdrawing funds from some brokers is very easily. It usually takes about 7 working days for you to receive your money, but some takes 48 hours. There are also some reputable online binary option trading platforms where your money is secured. These platforms come with customer service features such as Live Chat, fast Email response, Skype and many more.
Depositing funds into your account is instant. However, as part of security reasons, you will be required to verify your account by supplying a copy of your password or Identity Document (ID).
Remember to be cautious. If you are ready to trade binary options, it is recommended that you start with small deposits to see if you are able to do binary options or not. To be a good trader, it takes a lot of research and discipline.