Trading binary options is a relatively recent phenomenon and represents an opportunity for those who love to invest and speculate on the stock markets, but at the same time carries huge risks for the trader. However, the concept of binary options has actually existed for several decades.
Back in 1971, the Chicago Board of Trade laid the foundation for the establishment of the CBOE (Chicago Board Options Exchange). It was the first organization to control options trading and is now the largest options exchange. The CBOE was created in direct response to the lack of rules and regulations for derivatives trading.
Over the years, the regulatory mechanism for trading has evolved and improved, and soon another body, known as the Options Clearing Corporation, was created specifically to control asset trading. The CBOE and OCC not only ensure that brokers and traders comply with the rules, they also have the right to impose heavy fines and bans on financial market participants when necessary.
The first binary options were only available to the wealthiest people. In order to provide a similar opportunity to the middle class, OCC has allowed the sale of binary options on the exchange. This action by OCC was approved by the U.S. Securities and Exchange Commission in 2008, which led to increased interest in binary options both within the U.S. and abroad. The American Stock Exchange launched binary options trading the same year and became the first international exchange to serve these derivatives trading.
Fast Internet access combined with a number of new tools for analyzing option strategies, as well as the emergence of various specialized option platforms have allowed virtually every person to trade binary options. As a result, within a short time, the trading volume has increased dramatically. At the same time, investment banks were creating new types of exotic options (such as barrier options, compound options, basket options, ladder options, lookback options, lock-out options and others). The Internet provided an opportunity for traders to trade on intraday charts. Therefore, the market for exotic derivatives has balooned, which allowed many brokers to offer their services.
By 2010, there was a mini revolution in the industry, which improved binary options trading. There have been a number of changes in the assessment of all sorts of risks (weezu, charm, volatility skew, cash gamma and others) and potential earnings. The advancement of mobile platforms has also allowed everyone to trade binary options from any geographical location.
Modern society has quickly introduced and mastered modern methods of option strategy evaluation, as profitable trading involves a competent and detailed understanding of all risks, as well as maximum profit and potential losses. Under current conditions for binary options trading, the deposits at the broker can be minimal, much lower than what is required at the exchange.
A cautious approach to trading, combined with the necessary mathematical training (most professional derivatives traders have exceptional mathematical training up to understanding the differential equations and programming experience in Python, C++, VBA, STATA) over time will gradually increase profits, while reducing risks. Experienced and knowledgeable binary options traders gain the ability to identify favorable entry and exit opportunities.
Regulation of binary options trading
There is still some distrust in the binary options market. This is partly due to the lack of strict regulation and partly due to financial difficulties experienced by the world's leading economies in recent years.
Most brokers specializing in binary options are established in Cyprus, where they are regulated by CySEC. Despite the image of Cyprus as an unregulated and small country, these rules of binary options trading as well as the actions of the participants are controlled by the European Union and must comply with the strict financial principles of the Union.
The main reason for many brokers to register in Cyprus is to give them a professional advantage by voluntarily registering and because Cyprus has one of the lowest corporate tax rates in the world. Cyprus is also the best alternative to the highly regulated and taxable US market.
The laws in force in Cyprus governing the financial industry are no worse than those in the UK or Germany, as all countries must comply with the same regulatory framework. The law applicable to one country in the European Union applies to all.