It all started about 40 years ago, in 1973, when The Chicago Board of Exchange (CBOE) introduced trading on financial derivative instruments. They have played a very important role in making binary options what they are today. Nevertheless, binary options trading became very popular when it was introduced in the year 2008 as publicly tradable assets. This was the same year in which the financial markets crashed in the United States as a result of the subprime mortgage crisis. Big companies that collapsed, including Lehmann Brothers and Bear Sterns, caused many investors very heavy losses. This was when the need for investments with lower risk potential was actively sought by traders. During these times, binary options grew very popular among average traders as a new instrument for investment mainly because of its lower risk profile.
Binary options were available even earlier than their introduction into the market in 2008; however, the investment products were semi-official in nature and the option of trading in these instruments was open only to high net worth individuals, banks and institutional investors. Moreover, the trading of these instruments was possible only in Over The Counter markets. The manner in which binary options were traded in that period was very similar to how currency was traded before its deregulation in the year 1997.
As it happens with any new instrument, trading in binary options was fraught with difficulties and problems for the traders soon after its introduction. This was mainly because a proper regulatory framework did not exist. Binary options were always offered as part of large and complex contracts and it was not until the year 2007 when a separate liquid market for trading in binary options came into existence. Over the last few years, however, trading in binary options has evolved into a less complicated method for interested investors.
The difficult conditions for trading in binary options continued up to the year 2007. Earlier, in the seventies, the Options Clearing Committee (OCC) which was created to help in setting up a regulatory framework for the proper development of the binary options trading market, proposed a few changes when the real estate prices started falling. This was a precursor to the subprime mortgage crisis. These changes formed the basis for the development of binary options as financial assets that could be traded all on their own in major financial markets and exchanges. The binary options transactions became more transparent and this helped the instrument gain a higher level of respect in the market. Those who traded without any ethics were banned from conducting any trades in the future.
In the early part of year 2008, OCC’s recommendations for some changes in trading with binary options were accepted by the Securities and Exchanges Commission (SEC). The commission further legalized trading in binary options and major exchanges were soon in the process of offering binary options as a standalone tradable financial instrument. In the month of May 2008, for the very first time the American Stock Exchange introduced binary options trading for the public. This was followed by CBOE which introduced trading in binary options in June that same year.
Even in 2008, it was not easy to trade in binary options in CBOE or AMEX as several restrictions were in force and it was cumbersome as well. Moreover, traders who were interested in purchasing binary options contracts on CBOE could only buy Call options on the S&P 500 index.
The simultaneous growth of information technology and its applications greatly aided the advancements in the binary options trading market. Developments in technology led to creation and use of online trading software as well as applications that allowed trading of binary options on mobile devices. All these developments helped to remove a great deal of restrictions for the traders who wanted to deal in binary options. There is a lot of flexibility now as investors can trade in any type of binary options wherever they want. Investors are now free to trade in both Call and Put options in underlying assets belonging to four major classes: currencies, stocks, indices, and commodities. They can trade on binary options from any market around the world. With the rapid development of smartphone apps, traders can now conduct trades even when they are on the move.
The last five years has seen the development of many varieties of binary options with which the investors can trade. Binary options brokers have introduced demo trading platforms for novice traders that simulate the actual market environment. Charting tools and market news from agencies such as Bloomberg and Reuters have been made available to enable traders technically analyze the market condition before placing the binary options trades. These facilities were earlier absent on the traditional binary options trading platforms. Introduction of each of these facilities have directly benefited traders who deal in binary options.
To the question, ‘what is the future of binary options’ it is easy to see where it is headed to. ‘Binary options’ as a trading instrument has seen immense changes in a short period of time. There has been a steady increase in the number of traders who now comfortably use the binary options trading platform on a daily basis.
The Securities and Exchanges Commission of Cyprus (CySEC) in May 2012 has announced that it will bring binary options brokers under regulatory control. The binary options market is seen as a very important income generator for millions of traders with improved regulatory control and more advances in technology. Banc De Binary is one of the first binary options brokers to be licensed by the CySEC.
Binary options thus favor the small investors to get into the trading bandwagon with over-the-counter trading and a minimum amount of investment. However, for the binary options trader to make profits in this type of trading, it is important that the trader makes the correct investment selections based on sound knowledge of the market. In this context, it is also important for the binary options trader to find a trusted broker and good trading platform to conduct the trades and profit from them.
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