Binary options are a type of exotic financial instrument that allow you to earn a fixed return on your investment regardless of how much the underlying asset increase in value.
There are two different types of binary options, Up and Down options. Up options matures in the money if the value of the underlying asset is higher at the point of maturation. Down options matures in the money if the value of the underlying asset is lower at the point of maturation. If an option matures in the money then you earn a fixed return. Often between 70-90%. If the option matures outside the money then the option is worthless. You have lost your investment.
Binary options can be compared to a way to bet on the stock market. The practice has a lot in common with sports betting. Binary options used to be offered by sports books and online casinos before they became regulated as financial instruments.
Binary options are high risk investments.
Is binary options a scam?
I do not believe that binary options deserve to be labelled as a scam. Most brokers are very open with exactly how the options work. The buyer knows (or should know) exactly what he buys when he buy an option. It is true that the broker makes money when you lose money. But they are open with this. This does not make it a scam. Just like casino games is not a scam.
All options underwriters makes a profit only if the option matures outside the money. This is true for all types of options. Not just for binary options.
With all this being said. There is no doubt that the deck is stacked against the buyer. All binary options are designed to give the broker an edge. If you buy random options you will lose money. You need to be a skilled trader to be able to chose options well enough to make money.
There are scam brokers on the binary options market that will steal your money any way they can. But this is not true for all brokers. There are honest brokers out there. IQ option is one example of a honest broker
Do you recommend binary options trading?
No. I do not recommend that anyone trade with binary options. Most people who try will end up losing money. It is a very high risk trade and only 1 in a 100 will become truely successful. Only about 1 in 10 will make any money at all.
You can make money trading binary options but it requires you to be very dedicated to your trade. More dedicated then you can be as a part time trader. You need to be able to spend a lot of time analyzing the market to become successfully. If you want to devote that much time then I recommend that you become a day trader and trade a mix of different financial instruments including binary options and CFD:s.
How do you buy and sell binary options?
If you want to trade binary options you will need to open an account with a binary options broker. Click to fins a list of the best brokers. Each broker acts as the option underwriter and you will be able to invest in different options in different brokers. If you want to be able to buy a binary option based on a certain asset then you need to chose a broker who offer that option.
You can not sell a binary option once you have bought it. A low number of brokers allow you to close your position but most do not. Once you have bought an option you have to wait to see if it matures in the money. The only way to get any money back is if the option matures in the money.