Binary options are traded in multiple global markets, but in order to be successful, every investor needs to fully understand the risks and rewards associated with such non-traditional options. The fees and risks are varied in comparison to traditional stock options. Binary options trading outside the United States is also structured differently to trading in the United States.
Technically, binary options are considered “exotic options,” a fancy-sounding name for something that is functionally very easy to understand and interact with. They might also be known as fixed-return options, as you will know the potential gains or losses before entering a trade. Each binary option has an expiry date, which is generally a very short time in the future that the option expires. If a trader correctly predicts whether the option is higher or lower than the strike price at the time of expiry, then the trader receives the additional value of the option, regardless of how high or low the actual price of the stock is. If the trader predicts incorrectly, they will lose all or most of their initial investment.
United States versus Global Binary Options
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Global binary options operate similarly to the way they do inside the United States—they are generally fixed as far as payout and risk and are not offered on an exchange. Brokers earn money from the difference between the amount paid in winning trades and collections from losing trades.
Binary option trades are held until expiry, and are paid out with the entire winning amount, otherwise the bidder loses the entire sum that they invested. Americans are prohibited from working with foreign binary options brokers unless those brokers are registered with a United States regulatory body. It is always best to check on whether or not you are trading legally when you are working with a global binary options trading broker.
Should You Try Global Binary Options Trading or Not?
Binary options outside the United States have a known risk and reward, with a commission-free structure and set expiry dates. However the winning payout may be lower than in the United States, and there is very little regulatory oversight. Unfortunately, binary options brokers outside the United States may be operating illegally if they are engaging U.S. residents, as there are strict laws around how they can interact with Americans.
While United States residents do have options for trading outside their borders, the regulatory environment can be very challenging. There are also slightly different rules around global trading, including the need to be cautious of expiry date rules and rules about what happens when a trade is at the strike price exactly when the expiry date occurs.