Real binary options

There is no doubt that binary options are a leader among online trading assets. Traders prefer this financial instrument because trading options allow them to earn excellent profits reasonably short time. Trading binary options involve opening trades, some of which only last a few minutes or even seconds. In this case, your profit can be up to 90% of the invested capital.

At the same time, you may hear a lot of negative feedback about binary options trading. For example, many people accuse broker sites of fraud and refer to binary options trading as nothing less than a scam.

So let's find out what binary options are, their features and the main differences from other assets, what are real binary options, and how to trade options online? Finally, are binary options a good asset or a scam?

Today's topic is Real Binary Options Trading in South Africa.

Real binary options

Binary options are derivative financial instruments and are opened with a link to a specific underlying asset. The underlying instrument can be stocks, bonds, currencies, interest rates, stock indices, commodities and derivatives (e.g. futures contracts).

Options are contracts that give the right, but not the obligation, to buy or sell a particular asset at a specific price and time.

So, by opening an option deal, you choose an underlying asset, determine in advance the duration of the agreement (expiration time) and make a prediction about the price of the chosen asset at the time of the deal's conclusion. If your forecast is correct, you make a profit. But, on the other hand, if your calculation of the asset's price is wrong, you will lose the entire amount of your investment.

In investing in other types of assets, the investor may sustain a loss of some amount. For example, if an investor has invested in a stock that ended up falling in price by a few points, the investor will lose this difference. However, in the case of binary options, the investor loses the entire amount invested. Therefore binary options are often called 'all-or-nothing options' as they generate a profit ('all-or-nothing') or nothing.

It is thought that options were first used in the seventeenth century in Holland, in the flower market. In the 1630s, futures and commodity options (the buyer was given the right to buy or sell bulbs in the future at a predetermined price) were used during the tulip mania. Options made it possible to enter the tulip market for those who did not have enough money to buy even one bulb.

The mass use of options started in 1973 on the Chicago Board Options Exchange (CBOE), where the underlying asset was stocked. Previously, options were traded to a small circle of influential investors and all transactions were conducted over the phone. Then, SVOE launched standardised options contracts on 16 shares of US companies. With the standardisation of options contracts, binary options trading became widespread, and by the end of 1974, the number of exchange members was already around 600.  

In 2010, the CBOE was transformed into Cboe Global Markets Corporation, which was listed on NASDAQ during the IPO.

Options trading can now be done via a special communication system. Options on stock indices are top-rated. The most common option contract is the S&P 100 index. There are also options on sector indices, options on foreign stock indices and options on interest rates. The total number of index options is around 40.

Real options are traded on regulated exchanges and require a substantial investment of capital and the proper paperwork to buy or sell an option. Today's online investment marketplace has simplified this task by allowing you to trade binary options on online trading platforms. Technically, binary options trading is now available to anyone with an internet connection. Signing up for a trading platform takes a few minutes, and the initial investment starts at a few dollars.

Binary options, which we trade online through trading platforms, are different from real options. We are not buying the real underlying asset but only have the possibility to speculate on changes in its price. So, when trading binary options, our main objective is to predict the underlying asset's price movement correctly.

What are binary options? Brief classification

Options are classified according to different underlying criteria, namely:

• By the right to buy or sell the underlying asset - call or put;
• The duration of the transaction (expiry date) - European, American or Asian;
• By the type of underlying asset selected - commodity, stock, other;
• By settlement type - with the payment of premium or without the payment of premium;
• By results of execution - deliverable or settled;
• By market circulation - exchange or over-the-counter;
• Depending on the characteristics (properties) of the options themselves - standard or exotic.

Depending on the direction the trading on the binary market will take, options are divided into a call option and a put option. A call option is an option that gives you the right to buy an asset at an agreed price. Put option - an option that allows the trader to sell the asset at a fixed price.

This means that if the trader wants to protect the stock from falling, he must buy put options. On the other hand, in trading on the downside, the trader has to use call options to protect his position.

American option gives its holder an exclusive right to buy or sell the underlying asset, which is done at a predetermined price on any date before the contract's expiration.

European option gives its holder the exclusive right to buy or sell the asset, which is carried out at a price that was specified in advance, strictly at the time of expiration or performance of the contract.

Asian option contracts represent an independent derivative, where the strike price is determined based on the average value of the investment asset for a specified period.

Such agreements in financial circles are also called mid-course or average-price options.

Options fall into commodity options, stock options, currency options and so on. Here it is logical that the prediction of the trade outcome depends on the underlying asset you select. So when you open an option contract on one or another asset, you will be relying on the relevant market analysis.

A put option involves the physical delivery of a commodity (commodity market) or underlying financial asset (stocks, currency) by the seller to the buyer. A cash option involves paying the price difference when the option contract is concluded on the last date of trading.  In online trading, only a cash option contract can be opened.

The main difference between exchange trading and OTC trading is the degree of standardisation. Contract specifications govern Exchange-traded products with fixed contract sizes and delivery times. OTC products are not standardised, and contract sizes and delivery times are set by mutual agreement of the parties at the transaction time.

Finally, standard and exotic options. Exotic options are non-standard options whose characteristics and descriptions may differ significantly from standard options. Exotic options fall into two basic types: options that depend on the movement of the underlying price during the life of the contract itself; and options that are multi-options, which have several underlying assets and whose price depends on the relative prices of each.

Binary options trading: real profit or fraud?

Most online trading platforms offer very good trading conditions and trading is technically accessible to anyone with internet access. In addition, modern trading systems allow you to invest small amounts of money - even a few dollars is enough to open an option contract.

The downside of the availability of online trading is the misconception that investing is extremely easy and that an option contract is a wager of fortune akin to gambling. In fact, it is not. Online trading functions under the rules of stock exchange trading, relying on certain laws of the investment market. Ignorance of these laws, the state of the economy, market trends, lack of knowledge of market analysis methods, inability to use analysis and trading tools - all this leads to unsuccessful deals and losses.

The opportunity to earn good profits from the comfort of home attracts the attention of people who have not had any connection with this direction before and have a very vague idea about investing. As mentioned above, the result of an unsuccessful binary trade is the loss of the entire amount invested. Therefore, an inexperienced novice trader who bets at random, relying on luck alone, is unlikely to make a profit. This gives rise to the misconception that binary options trading is nothing but a scam.

In reality, trading online involves having basic knowledge about investing, learning how the platform works, using market analysis, and being able to predict the price of an asset based on market trends and economic laws, not on luck.

Quality and reliable trading platforms provide entire training sections, as well as a demo account to allow for learning as well as free and safe trading practices. Below we take a look at how to open such an account and start trading binary options in South Africa.

Trading binary options online in South Africa

You can only invest online through a licensed financial intermediary represented by a broker. The brokerage company you choose must be legal, i.e. it must have all the authorisations required by the country's legislation, as well as a licence to carry out brokerage activities. Become familiar with the reviews of the brokerage company, using reliable sources of information - these may be official financial publications, business forums, and so on.

The broker will give you access to an online trading platform to invest. You will have to register on this platform, open an account and actually start trading. We recommend choosing a broker that offers a free demo account for testing purposes, as well as easy depositing options.

How to register on the trading platform?

The registration process is straightforward and easy to follow. Just find the "register" option on the broker's website, and once you click on it, a registration form will open up for you. All you have to do is fill in your details (username and email) and then confirm your registration through an automatic link, which the system will generate and send to your email address. Click on that link and in that way you will confirm your registration. You will now have access to all the features of the online trading platform.

Explore the functions of the platform with a demo account

When you log in to the platform for the first time, you will be asked to open a free demo account. A demo account will help you practice making transactions on the platform without having to fund your account with real money. On the account you will see a certain amount of dummy funds, which you are free to use for training purposes. The benefits of this type of account cannot be overestimated, as real investing can result in losses. So if you have little trading experience and you don't want to take any chances, make sure you practice with a demo account. You will have access to the same features of the platform as when you use a real account, except of course for withdrawals. If your demo account fails and you lose any dummy funds, you will be able to restore these funds and continue learning. There is no time limit on how long you can train and use your demo account.

Activating a live account

To start real trading on the platform, deposit an amount into a live account. You can do this with a bank card or any of the payment systems specified on the platform. As a rule, the crediting of funds is automatic. In some cases, it may take up to five banking days. The minimum amount required to fund a live account is usually a few dollars. This allows you to start trading even without much capital.

As a rule, you may withdraw funds from the account in the same way as depositing by using the same payment system or bank card.

In any case, you should always remember that trading involves risk, so if you are still inexperienced, start with a small amount, so as not to lose much money in a bad trade.

Trading binary options is a great way to make good profits. You should remember that investing is a rather extensive subject, which requires study and time as well as practice trading. Therefore, do not neglect the opportunity to study the lessons presented on the platform, and also take advantage of a demo account to get started.

Caution, deliberation and persistence in learning and using free practice will bring you good results.

Open a Demo Account and start learning binary options trading today!