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Tuesday, 3 June 2014

Binary Options Trading Online

Binary options are a relatively new way for traders to profit from price changes of a range of financial instruments including stocks and stock indexes, currencies and commodities. The online trading of binary options splits into the two camps of US exchange trade binary options and a growing selection of binary options offered by unregulated, offshore companies.

The exchange traded binary options have not been well received since their introduction. The contracts are thinly traded and bid/ask spreads are extremely wide. Traders interested in exchange listed options have better opportunities for profitable strategies using traditional equity options.

The premium binary options offered by the offshore companies are structured like sports bets. The trader sees a price of the asset, such as Apple stock or gold listed and can select whether the market price will be higher or lower at the end of the hour. If correct the trader will earn approximately 70 percent on the amount invested, which can be as low as $50. If the trade ends out-of-the money the online firm will typically return 10 to 15 percent of the trade to the trader's account.

Online binary option trading is tempting due to the ability to make a trade every hour on a range of assets and the immediate gratification of a profitable selection. The mathematics of online binary option trading are in the house's favor. If a trader makes two trades of $100 each and one is a win and the other is a loss the net result will be about a $15 loss assuming a 70 percent payout on wins and a 15 percent refund on losses. A trader must be correct in approximately 55 percent of her trades to overcome the house edge and break even. With the ability to trade every hour, a short string of losses could easily wipe out an account.

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