The largest advantage is that the risk and reward are always known compared to traditional stocks. Regardless of market changes, a binary option may only have two outcomes, which is to earn or lose a certain amount of money. Another benefit of binary options is that typically there are no costs or broker fees such as commissions however, this may not apply to all international brokers. In this type of trade, brokers typically earn a percentage of winnings or losses instead of charging fees. Additionally, the trader only needs to make a single decision as to whether a particular asset will rise or fall. Because the trader never actually owns the asset, there are no liquidity concerns as with traditional options. Finally, a trader may purchase a binary option at any time of the day anywhere in the world since most of these assets are sold online of via phone call and there are no time restrictions. There are some drawbacks to this type of trade. For one, binary options are not technically owned assets in the respect that they cant be sold. Instead, they are wagers on whether an asset will increase or decrease in price. In addition, there is a risk with these types of investment because an investor could potentially lose money. In this type of situation, investors should analyze whether a binary options risk to reward ratio is worth making the trade. When making this consideration, investors should consider a particular brokers payout rate. Furthermore, because binary options are usually sold on over-the-counter markets, these assets are not subject to U.S. SEC financial regulation. As a result, there may be a greater risk depending on the broker.In 2007, the SEC approved binary options to be traded on U.S. registered exchanges. The only type of binary option that is legal on these SEC regulated exchanges are the traditional all or nothing binary option, which began being sold in 2008. Most of these binary options are sold on the stocks of large U.S. corporations. These are made based on whether a particular stock for a particular company will rise or fall at a predetermined time. However, these exchange listed binary options typically have smaller rewards than foreign binary options. The SEC regulates all transactions sold on U.S. registered exchanges to ensure client money is always maintained in a trust account, and all transactions are monitored for fair play by unbiased parties. However, this doesnt mean all over-the-markets transactions are unregulated. There are various institutions that monitor these types of transactions. For example, the Cyprus Secures and Exchange Commission (CySEC) is one third party that regulates registered investment firms who operate binary options trading. This company has been regulating this type of trade since May 2012. Many binary options platforms operate out of Cyprus, and this company is an EU MIFID-member regulator. Another company that regulates this type of financial instrument is the Malta Financial Services Authority. Previously, binary options were regulated by Maltas Lottery and Gaming Authority, which commonly regulates casinos for fair play. However, in March 2013, the Maltas Lottery and Gaming Authority changed course and made a statement that binary options would now be regulated by the Malta Financial Services Authority like most other financial instruments. This is another company that regulates investment firms that sell binary options. In order to operate under this jurisdiction, investment firms would need to register with this authority and comply with certain capital and license agreements. These regulatory bodies have also penalized companies involved with binary options trading that have violated certain financial rules in the past. They also regularly issue warnings against investment firms that are making unfair trades regardless of whether these companies are registered with these regulatory bodies. Investors who are concerned about the safety of binary options trading may check for warnings on certain companies by these regulatory bodies. The Cyprus Securities and Exchange Commission has also been known to suspend a particular finance companys license if they violate rules or endanger a companys customers and penalize companies with fines. Finally, the U.S. Commodity Futures Trading Commission (CFTC) also issues investor alerts regarding fraudulent schemes for binary options trading financial firms.The most common prepositions made for binary options are on stock indexes, currency, commodities and economic events. As a result, learning about these markets may improve the chances of earnings when purchasing binary options since investors are more likely to choose the correct event that occurs. Binary options sold for stock indexes will typically involve a companys stock traded on a U.S., German, British or Japanese market and will entail whether or not this stock will rise or fall. The benefit of purchasing a binary option for companys stock is that its possible to study whether or not this company will rise or fall based on market trends. Expirations for these types of binary options vary on a broker to broker basis however some may be as short as a few minutes while there may be long expiring dates. Another type of common binary option is whether a currency will rise or fall. For instance, whether the euro will fall against the dollar on a particular date and time. These types of binary options trading typically have short expirations from hours to a few weeks at most. Knowing market trends may assist traders in this type of investment when choosing the correct option as well as government banking policies. Furthermore, many binary trading investment firms offer trades on whether the price of a particular commodity will rise or fall. Most of the commodities used for this type of trade involve metals and energy and agricultural products. The most common types of metals for binary options are the prices of gold, silver and copper. Investors making wagers on these types of commodities may want to get informed on recent market trends and whether the price for a particular metal has been rising or declining.
