Written by: Sophie May
In the last few years, binary option trading has become widespread and grown remarkably in popularity among investors. It is a common misconception that this recent boom marked the start of the industry: in reality, the origins of binary option trading date back much further.
Traded at an Exchange
Binary options have long been traded at exchanges. To this day it remains possible to trade these options at exchanges such as the Chicago Board Options Exchange (CBOE). The CBOE lists both call and put binary options. There are no price variables so the trader wins or loses a set amount. If the price of the underlying asset closes above the strike price, the buyer of a call option is in-the-money, and visa-versa. As with traditional options, binary option positions traded at an exchange may be bought or sold prior to expiration.
Online Trading Platforms
In 2008 binary options became accessible to retail investors via online trading platforms. This came about after an SEC (Securities and Exchange Commission) ruling in the US, meaning that binary options were no longer limited to being traded on an exchange. A number of online brokerages opened, finally making binary options trading mainstream and accessible.
The ruling by the SEC coincided with the global financial crisis and a recession that hit investors hard. People felt increased skepticism about traditional investments and desired higher security and more manageable risks. Indeed, Banc De Binary was founded in January 2009 by those coming from the traditional banking world, who experienced the banking crisis first hand and wanted to offer investors a more stable means of trading.
21st Century Economics
The digital age has revolutionized the financial markets. There are more assets and contract types than ever before. Large investment houses, with advanced computer programs backing up the work of their financial analysts, have a distinct advantage over the average investor and can capitalize on investment opportunities, leaving retail investors priced out and pushed out of the markets.
This economic climate has combined with increased market volatility to drive the growth of the binary options industry. Brokerages have succeeded in marketing their products to those who suffer most from the complexities associated with traditional investments, as well as to those who have never traded before but desire a simple route into the financial world. Binary options have therefore developed a reputation for known risks, simplicity, and a de-emphasis on volatility. These very qualities will undoubtedly guarantee the future of the industry and its continued development.