What Newbies Should Know about Derivatives and Binary Options Brokers
While financial derivatives are being touted as simple ways to invest and grow one’s money, newbies should know that there is more to know about them. A derivative represents a contract involving two or more parties; not to buy or sell an investment asset but to speculate on the price of an agreed upon asset or commodity at a specific point in time as stated in the contract.
A binary options trading contract for one, is as straightforward as putting an investment asset, let’s say cash, foreign currency or cryptocurrency as the object of a derivative. It poses a simple proposition that at a given time, the object of the contract will either yield a price, which could either be higher or lower than contracted price projection.
Depending on what proposition is being offered, and what a prospecting investor believes is the possible outcome, a trading contract can be closed with either a “Yes” or “No” answer.
However, a newbie to binary options trading should know that if the position he has taken does not turn out as he expected, he stands to lose the investment asset he placed under the binary options trading-contract. On the other hand, if the investment instrument yields a price higher than what a trader projected, he gets to collect gains based only on his projected winnings and not on the so-called “strike price.” The “strike price” being the value used when pricing an investment instrument up for sale in the commodities market.
Is Binary Options Trading a Form of Gambling?
To some, binary options trading appears like a pure and simple betting transaction between parties. It is, if a trader enters into contracts with unlicensed fly-by-night brokers.
Unlike trading contracts with licensed brokers, a regulatory body imposes rules on, and closely monitors, the trading activities of brokers licensed in their jurisdiction. A government’s regulation of derivatives aims to protect traders; usually by requiring brokers to put up a deposit-insurance, put a limit to contracts, as well as ensure that investors are well aware of the risks involved when investing in derivatives. Those are only some examples of regulations that lessen the risks faced by traders in dealing with derivatives.
Is Binary Options Trading Legal in All Countries?
Have awareness that not all licensed brokers follow a uniform structure in offering derivatives.
In the U.S. binary options trading takes place via the North American Derivatives Exchange or the NADEX platform.
Licensed brokers outside of the U.S. can offer derivatives using their proprietary software, which denotes contracts can be entered by traders through the broker’s web-based platform.
Still, in some European financial systems, binary options trading is not duly recognized as a legitimate form of financial trading.
In the same way, not all licensed brokers offer the same kind of trading platform. In order to know the differences, traders new to derivatives should take time to assess different platforms. This suggestion also comes with the recommendation to choose a broker who offers a demo or practice trading platform, free of charge.
That way, they can make informed decisions after comparing the different tools and features being offered by each broker.
IQ Option, Binary Options Broker Preferred by Most Newbies
After making comparisons of demo platforms, most newbies to the binary options market settle on IQ Option as the most helpful, reliable and safest broker. The company operates outside of the U.S but is duly registered and regulated by the Cyprus Securities and Exchange Commission (CySEC). The CySEC accreditation alone is already a positive indicaton because the financial institution pioneered the licensing and regulations of binary options trading.
When checking out reviews of the IQ option real-money trading platform, the ratings given are usually 10/10.