The history of binary options

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What is the history of binary options?

Binary options trading is option trading for which there are two possible results. A trader purchases an option and at the expiration of the option period.

If the option is profitable, it generates approximately an 80% return on the trader’s investment. If the option is not profitable, the trader loses whatever amount of money he had paid for the option. Binary options are very simple to trade, even for inexperienced investors, and binary options trading requires very little starting capital – usually no more than a few hundred dollars.

Binary options trading for the average retail trader essentially began with the U.S. Securities and Exchange Commission’s approval for exchange trading of these options in 2008. Since then, it has expanded and spread very rapidly.

Binary options had, in fact, existed for many years before 2008, but they were previously available only to large, institutional traders or high net worth individuals through the over-the-counter market.

In 2007, the Options Clearing Commission recommended changes in binary options trading that would make them freely available for retail traders, and in 2008, the SEC approved the offering of binary options as a tradeable investment instrument. Shortly thereafter, the Chicago Board Options Exchange (CBOE) and the American Stock Exchange began offering binary options for public trading.

Early on, binary options trading was still complex and challenging for retail traders. Initially, only call options were available on the CBOE. Two factors led to the explosion of binary options trading: first, the broadening of the types of options available, accompanied by significant improvements in trading platform software that greatly simplified the trading of binary options. Another factor was the introduction of binary options in forex trading, where they gained popularity much more quickly than they had in stock and futures trading.

Today, there is growing flexibility in binary options trading. Traders can specify not only the amount of money they wish to risk on an option, but its strike price and expiration period. It is possible to purchase insurance on a binary options trade by opting for a lower payout percentage, in exchange for which the trader will only lose part – rather than all of his option investment – if the option is not profitable at expiration.

Binary options are available across virtually all tradeable financial assets, with a variety of contract types and expiration periods ranging from one minute to one year. There are hedge funds that primarily focus on binary options trading. In the forex markets, binary options trading was initially only available through specialized brokers. Recently, regular forex brokers have added binary options trading platforms for their clients. Binary options trading will likely continue to increase in popularity in the foreseeable future.

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In the EU, financial products are offered by Binary Investments (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta, regulated as a Category 3 Investment Services provider by the Malta Financial Services Authority (licence no. IS/70156).

Outside the EU, financial products are offered by Binary (SVG) LLC, Hinds Building, Kingstown, St. Vincent and the Grenadines; Binary (V) Ltd, Govant Building, Port Vila, PO Box 1276, Vanuatu, regulated by the Vanuatu Financial Services Commission (view licence); Binary (BVI) Ltd, Kingston Chambers, P.O. Box 173, Road Town, Tortola, British Virgin Islands, regulated by the British Virgin Islands Financial Services Commission (licence no. SIBA/L/18/1114); and Binary (FX) Ltd., Lot No. F16, First Floor, Paragon Labuan, Jalan Tun Mustapha, 87000 Labuan, Malaysia, regulated by the Labuan Financial Services Authority to carry on a money-broking business (licence no. MB/18/0024).

This website’s services are not made available in certain countries such as the USA, Canada, Hong Kong, Japan, or to persons under age 18.

The products offered via this website include binary options, contracts for difference (“CFDs”) and other complex derivatives. Trading binary options may not be suitable for everyone. Trading CFDs carries a high level of risk since leverage can work both to your advantage and disadvantage. As a result, the products offered on this website may not be suitable for all investors because of the risk of losing all of your invested capital. You should never invest money that you cannot afford to lose, and never trade with borrowed money. Before trading in the complex products offered, please be sure to understand the risks involved and learn about Responsible Trading.

In the EU, financial products are offered by Binary Investments (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta, licensed and regulated as a Category 3 Investment Services provider by the Malta Financial Services Authority (licence no. IS/70156).

In the Isle of Man and the UK, Synthetic Indices are offered by Binary (IOM) Ltd., First Floor, Millennium House, Victoria Road, Douglas, IM2 4RW, Isle of Man, British Isles; licensed and regulated respectively by (1) the Gambling Supervision Commission in the Isle of Man (current licence issued on 31 August 2020) and by (2) the Gambling Commission in the UK (licence reference no: 39172).

In the rest of the EU, Synthetic Indices are offered by Binary (Europe) Ltd., W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta; licensed and regulated by (1) the Malta Gaming Authority in Malta (licence no. MGA/B2C/102/2000 issued on 01 August 2020), for UK clients by (2) the UK Gambling Commission (licence reference no: 39495), and for Irish clients by (3) the Revenue Commissioners in Ireland (Remote Bookmaker’s Licence no. 1010285 issued on 1 July 2020). View complete Regulatory Information.

Binary.com is an award-winning online trading provider that helps its clients to trade on financial markets through binary options and CFDs. Trading binary options and CFDs on Synthetic Indices is classified as a gambling activity. Remember that gambling can be addictive – please play responsibly. Learn more about Responsible Trading. Some products are not available in all countries. This website’s services are not made available in certain countries such as the USA, Canada, Hong Kong, or to persons under age 18.

Trading binary options may not be suitable for everyone, so please ensure that you fully understand the risks involved. Your losses can exceed your initial deposit and you do not own or have any interest in the underlying asset.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with Binary Investments (Europe) Ltd. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

History of Binary Options

The history of binary options can be traced to 2008 when it was first introduced publicly as a tradable asset on the Chicago Board of Exchange (CBOE). 2008 was a year that will not be forgotten in human history. That was the year that the cards came crashing in the financial markets, as the subprime mortgage crisis in the US triggered the collapse of Bear Stearns and Lehman Brothers, and subsequently the global financial system. With such a situation that cost many everyday investors all over the world a lot of money, there was a lot of pressure for investments with a lower risk profile to be made available to traders. This was what led to the entrance of binary options trading as a new form of investment for the average trader.

Even though binary options gained mainstream popularity in 2008, it has actually been around for quite some time. In years gone by, binary options were a semi-official investment product, open only to banks, other institutional and high net-worth investors in the Over-the-Counter (OTC) markets. In essence, the situation with binary options was not much different from what obtained with forex trading prior to 1997 when that market was deregulated.

In order to understand when the practice of trading binary options actually started, we would have to go back almost 40 years, to 1973 when options trading on financial instruments commenced on the newly created CBOE. These early days were difficult as the regulatory framework for trading options were not yet developed. Over the years, binary options trading evolved as a less complicated way of trading options. They were still offered as part of larger and more complex contracts, and as mentioned earlier, there was no regulation whatsoever for binary options. There was still no separate liquid market for trading binary options.

These conditions existed until 2007. By this time, the subprime mortgage crisis had begun to play out with the collapse of real estate prices. The Options Clearing Committee (OCC), which had been created in the early 70s to develop the regulatory framework for the options markets, proposed changes that would see binary options elevated to the status of a financial asset that could be traded on its own in the major exchanges. By early 2008, the US Securities and Exchange Commission (SEC) accepted the recommendations of the OCC and made it legal for binary options to be offered on major exchanges as a stand-alone, tradable financial instrument. By May of the same year, the American Stock Exchange (AMEX) started offering binary options to the public for the first time, and the CBOE followed suit the following month.

Even as at 2008, the process by which binary options were traded on the CBOE and AMEX were cumbersome and restrictive. Traders who wanted to buy binary options on CBOE had to purchase the contracts on the S&P 500 index, and only one type of options (call options) could be purchased.

The advances in information technology which has seen the advent of trading software that have been deployed for online use as well as mobile versions of the trading platforms, have seen an explosion of binary options trading. There is a lot more flexibility now. No longer are traders restricted in terms of where to trade or the type of options to trade. Traders can now trade both call and put binary option types, trade a plethora of financial assets across several markets, and can now trade binary options on the go with their smartphones.

In addition, many more trade varieties have evolved, with traders now being able to trade binary options in three different ways. Recently, a few brokers such as Optionfair.com have upped the ante by being pioneers in providing simulated trading and charting tools for traders to conduct technical analysis prior to trades. This is something that had been traditionally absent with binary options trading.

With more brokers and vendors coming up with products for the binary options markets, the true beneficiaries are none other than the traders, who now have better options when it comes to binary options trading. With the blazing speed at which technological innovations have come on stream in the last 5 years beginning with the iPhone, one can only imagine what the future would hold. One thing is sure; if this blog were to rewrite this article in the next 5 years, there would be a lot more to say about the history of binary options trading.

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