For those of you new to trading binary options, you are in for a nice surprise. This goes especially for those that have traded in different markets in the past. While trading in other markets, you are typically restricted to just the assets that your broker is licensed to sell. So, for stock brokers, that includes stocks and maybe some indices or ETFs. In the currency market (Forex), you can trade currencies. And if you want to trade commodities, you need to go through yet another type of broker–one that specializes in certain commodity futures. In other words, there’s not much chance for trading different classes of assets without a big hassle.
In the binary options world, though, this isn’t a problem. Binary options do not deal with the assets directly, but rather you are focusing on underlying assets. There’s no change in ownership or agreed upon changes for the future like with futures and options. Instead, you are predicting price movement only. In this sense, it’s akin to betting, but the big difference is that a skilled trader has a huge edge in getting their prediction to be correct. It’s not actually betting because there is a strong possibility of success, but this is still a good method of comparison.
You can trade stocks, indices, currency pairs, and commodities as binary options. What’s more, there are a few different variations of how you can trade these things. Some brokers even allow you to trade the relationship between two different assets if you wish. For example, if there are two companies that are seeing a lot of popularity at one moment, the broker might wish to set them up together as a pair. If Google and Apple are in the pair, your goal is to pick which one will have the highest percentage change, and then make your trade accordingly. This creates a whole world of possibilities that traditional brokers cannot provide.
Binary options brokers do not necessarily need to be registered as financial brokers to sell their products because these are not technically considered to be securities. You will still want to pick a licensed and regulated broker, but their regulatory bodies will often not be government ordained, but rather independent bodies that audit their practices to make sure that things are on the up and up. This is an important safety feature for you and it is designed to help protect your cash from fraudulent activity.
The weakness that you will find in binary options is that they do not have the same number of offerings that a stock broker will. You’re not going to find obscure penny stocks at a binary broker, simply because there isn’t enough demand to have an incentive to provide these. You will find only the biggest and most popular stocks of the moment. You will see your Apples, your GEs, your Microsofts, and your Facebooks. These are hot stocks right now, and binary brokers offer them because they know people know them and they know people will trade them more regularly. With commodities, you probably won’t find pork bellies or rye, but you will find oil, gold, and maybe coffee and wheat. When it comes to currencies, though, you will have more choices. The binary brokers know that they get a lot of business from people defecting from the Forex market, so they play up this relationship. Sure, you’ll find the EUR/USD pair, but some brokers will go as far as to provide cross pairs that include the Swiss franc, the Russian ruble, the Canadian dollar, or the South African rand. If these interest you, just keep an eye out for them.
Binary options are exciting for a number of reasons, but being able to consolidate your trades across many different marketplaces into just one broker is a big reason why they have become so popular, and ensure that they will stay this way for quite some time.