Binary options have become popular in the last few years not only because they are an exceptionally easy to understand trading product, but also because internet technology has advanced so much, that ordinary people can trade them on their home computers or their smartphones and still keep their day jobs. Until they become rich anyway.
The story of binary options really begins in 1973 when the Chicago Board of Trade created the Chicago Board of Options Exchange. This event created an exchange where options could be traded. Although at that time binary options were not traded or listed on the exchange, they were still traded directly between two parties, called over-the-counter transactions, with banks being the intermediaries. At this time binary options were not regulated at all. The reason for them not being regulated was that as there were very few transactions the regulators felt there was not any need to regulate and protect the users of binary options.
The Regulation of Binary Options
All this changed in 2007 however, when the Option Clearing Corporation asked for a change in rules which would allow binary options to be traded on the major exchanges around the world. This meant that for the first time binary options would be subject to regulation and the users protected against unscrupulous brokers. However, it was not until 2008 that the Chicago Board of Options Exchange decided to actually list and introduce binary options. Also in the same year, binary options were listed on the North American Derivatives Exchange. So as more and more exchanges around the world began to gradually introduce binary options, they started to become more popular with professional traders and amateur traders alike.
While contracts for traditional options can be and mostly are long term and are measured in months, binary option contracts are short term and are measured in minutes and hours. This is the reason that unlike traditional options where the investor can buy or sell contracts prior to the expiry of the contract; binary options are always held until their expiry time. So even though they are less flexible than other types of options, the binary option is favoured by new traders because it is a simple instrument to trade.
Couple this with the incredible improvement in internet technology, on-line speeds and internet security, the growth in popularity, particularly with amateur traders, has forced the on-line brokerage firms to improve and simplify their trading software so that they are simple enough for an amateur trader to use and therefore enable them go about the task of making money rather than thinking about how to use the trading platform. The attraction of making money without needing to master complex mathematics or technical analysis has caused the binary option market to become the biggest growth area in the financial markets, as more and more amateur traders start to use them. Now, with binary options having become a completely different prospect for amateur investors, with less regulation, easy availability, and transactions that do not require any physical contracts, it is not surprising that if the amazing growth trends of 50% per month continue, it won’t be too long before the binary option market rivals the $4.8 trillion a day foreign exchange market.