He appreciates that wikiHow is a great place to connect and collaborate with others, and overall have fun while doing it. To new editors, he says, Jump right in, learn from your mistakes, and move on. If you need help, ask, and you will get a replyNew investing products appear more and more frequently. Some of these are good innovations, others are bad and some are bad now but may improve over time as interest grows. In this article I will cover an example of a product that fits the latter category. The product I am referring to are binary options. These are new to most individuals but marketing campaigns currently underway are working hard to create awareness amongst active traders.Binary options are designed to eliminate a lot of the complexity of traditional vanilla calls and puts. They are called binary options because they are typically all or nothing trades. If you buy a binary option you will either be paid the maximum gain or you will lose your entire investment.Most binary options currently available are further simplified by only having one strike price. If you buy a binary call and the market closes above the strike price you will be paid the maximum gain. If the market closes below the strike price then you will be paid nothing. The reverse is true for binary put options.Binary options are some of the most expensive trading instruments available to retail traders. The bid/ask spread can be up to 40 or more of the purchase price. This means you have to be right a lot just to overcome the spread. Trading costs can be a killer and right now the cost for binary options just seems way too high.Most short term traders lose money. Study after study has shown that actively trading in and out of stocks or other assets leads to below market returns. There is a great deal of random and unpredictable movement in the markets over short time horizons so if the best you can hope for is 50 accuracy then you will lose overall with binary options.The large spread on binary options can be partially explained by the fact that these are still very illiquid markets. Depending on where you are trading, once you buy a binary option you may not be able to sell it. You may have no choice but to sit on it until expiration. That is not an ideal situation for any trader wishing to remain flexible as the market changes.Overall, binary options fall into the interesting but not ready for trading category. Inevitably there will be traders willing to blaze a trail in these option contracts and it may be worthwhile to watch these markets develop. I think it is likely that eventually they will be priced fairly enough to make sense for aggressive traders. If you find them attractive yourself, try paper trading them for now.The example I used above was representative of how over-the-counter binary option dealers offer this kind of investment product. However, this is not the only way binary options are offered. Exchange traded versions available through Nadex and CBOE are more fairly priced, constructed differently and offer the flexibility in expiration dates and strike prices that traders need. I plan to publish a part-two in this article series to dig into those differences more thoroughly.I have also published a response we received from Dan Cook the Senior Market Analyst at IG Markets (Nadex). I thought he had a great point of view and I agree that in general, regardless of investing product, exchange traded versions are almost always better because they are more flexible, transparent and liquid. Dan and I also both agree that we hope the market continues to mature to make these options more productive for traders.Hi John, I appreciate your article however, I do not believe the sites you were trading on are at all representative of binary option trading. For example, traditional binaries are traded on a per point basis with a minimum value of 0 and a maximum value of 100.So for instance if I have one contract representing 1 per point the most that option can be worth is 100. The fact that the site you are referring to even allows you to buy a binary at 100 defies the nature of the instrument (btw, this is not your fault, there are some sites whose house edge makes Vegas jealous). In order to get an understanding of binaries I would stick to the CFTC and SEC regulated exchanges of NADEX and CBOE.With regard to their expense, the spread on binaries on these exchanges is usually not that different from the underlying and it is only one sided. You are correct that it can sometimes be 40 of your purchase price, such as in the case of buying a binary option at 10 (10) and the sell price is 6 would that equate to 40 of the purchase price. It would still only represent 4 of the overall potential option value.Additionally, from a risk perspective, and I am only speaking about exchange traded binaries, not the circus sites, binaries offer a much better risk perspective than trading a contract in the underlying. Here is an article on utilizing binary options as an addition to a traditional trading approach.There have been tremendous changes in the binary options trading sphere in the United States. The United States has remained a global standard when it comes to regulation of activities in the financial markets, and the binary options market is no different. Where laxities and loopholes have existed in other climes, these are virtually non-existent in the United States.The binary options market has been a tightly regulated industry in the US even when this market still did not receive the appropriate classification in Europe and several other climes to enable an appropriate regulatory framework for the market. The Commodities and Futures Trading Commission (CFTC) has been the regulatory body handling the regulation of the binary options market in the United States, after the original framework for take-off of the market was developed by the Securities and Exchange Commission (SEC).
