A few months back, I gave y’all a brief background on binary options. Here’s a short recap of what they are:
Traditionally, an “option” gives the purchaser the right to buy or sell an asset at a predetermined price and date. Take note that this merely gives the holder the RIGHT but not the OBLIGATION to do so. Should the numbers suggest that exercising the option isn’t worth it, the holder can just let it expire and only lose the cost of buying the option, or “premium.”
With binary options, the premium paid for an option is determined by the trader (not the market as with traditional options), and the expiration time frames are also much shorter with binary options, with many ending within the hour of its availability in the market.
With a binary option trade, the broker will payout (normally a percentage of the premium paid) if certain conditions of the contract are met. For example, if a trader holds a call option, and by the time of expiration price is above the strike price, then the broker must make a payout to the trader.
The simple mechanics of the trade are just some of the reasons why several traders are showing interest in binary options trading. In fact, a recent study showed that binary options are actually seeing strong growth in emerging economies.
The Daphnis Group recently released a study about the development of the binary options market, and it showed that in countries like Russia and China, the binary options industry is growing at a much faster pace than in developed economies like the U.S. and the U.K.
One of the major reasons why binary options have caught on in Russia is thanks to strong marketing efforts that have highlighted the benefits of binary options trading.
Meanwhile, the study also indicates that while the Chinese market is growing at a faster pace than its Western counterparts, there is still huge potential for growth. For one, as access to the Internet grows, so does knowledge about financial investments and online trading. Coupling this with the ban on online gambling in the country, Chinese traders may instead focus their attention to online trading.
On the other side of the globe though, binary options trading seems to have a tougher time catching on. The Daphnis Group study also discussed the stricter regulations in Western markets, as well as the unstable legal environment in Europe and the United States, which has discouraged most binary options brokers from setting up shop in those regions.
In fact, Italy already banned binary options trading as the Public Prosecutor of Rome ordered the blocking of binary options websites from being accessed in their country. According to their directive, Italian financial regulator Consob believes that binary options trading closely resembles gambling rather than an actual financial service.
These recent developments, may they be good or bad, reflect the growing interest in binary options trading. It appears that regulators already have their work cut out for them as the potential boom of the binary options industry should be accompanied with proper supervision from authorities.
While regulation is still underway, it would help to be informed about this kind of trading. If you are interested in this market, then you might find our new School lesson on binary options useful in figuring out if you can make money from trading the different types of binary options.