Binary options is a trading method in which you speculate on the rise or decline of an asset. An option is a contract representing a right to buy or sell stock at a specific price within a certain time frame. You can think of binary options as bets whose value will fluctuate. The price for this bet may be fixed ahead of time, or it can move based on market conditions.
Binary Options are a more straightforward financial tool than most and can take many forms, from high-low trades to forex trading and commodities trading. They have no complicated graphs and charts, but if uneducated about them, they can prove to be even riskier than standard futures trading due to higher early withdrawal fees and stricter regulations.
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Regulation of Binary Options In Australia
When trading binary options in Australia, it is crucial to be aware of the regulations that are in place. The Australian Securities and Investments Commission (ASIC) is the regulatory body that oversees all financial products and services in Australia, including binary options, is the Australian Securities and Investments Commission (ASIC). Binary options fall under ‘derivatives’, which derive their value from an underlying asset.
Firms offering binary options trading in Australia are not required to hold an Australian financial services (AFS) licence. Due to the lack of regulation, many binary options trading companies pop up under the impression they do not need to adhere to regulations or protect their client’s funds.
The ASIC does, however, make the distinction that binary options are ‘financial products’ if they offer leverage and derivatives. Due to this, many Australian brokers operate outside the law with no protection for you as a trader.
Binary Options Platform Types
Before starting work on your Binary Options portal, you should research platforms available on the market since there are a few different types.
Whichever platform you decide to go with, make sure you test it on a demo account before trading with real money.
How to Trade Binary Options
There are two ways to trade binary options, High/Low and One-Touch trades. The most popular of these is the High/Low trade which involves betting that the price of an asset will fall between a fixed range at a particular time.
An example of this might be: Say you believe that the Australian dollar (AUD) will close below .72 against the US dollar (USD), so you buy an AUD/USD binary option with a strike price of .72 and an expiry time of 30 minutes. If, at any point during those 30 minutes, the AUD/USD rate falls below .72, then your bet wins, and you receive double your original investment as profit. You can think of this as buying one AUD/USD currency pair for $0.72 and selling it back at $0.76, making a profit of $0.04 per pip.
If, however, the AUD/USD rate finishes the 30 minutes at .7275 or higher, then your binary option will expire out of the money, and you will lose your initial investment.
One-Touch options are similar to High/Low trades but with one key difference – the trader is betting that the asset’s price will touch a certain target level before the expiration time, rather than finishing within a set range.
It could be something like betting that Google stock will close at or above $1100 by the end of the day. If it does, you would have made a successful One-Touch trade and received a payout of upwards of 200% on your investment.
Risk Management
No matter which type of binary options trade you are making, it is always important to remember to use risk management techniques. It means ensuring that you never risk more than you can afford to lose and setting stop losses on your trades to protect yourself from significant losses if the market moves against you.
Choosing a Broker
When choosing a broker, it is vital to research who you are entrusting your money with thoroughly. Reputable Binary Options brokers will have a licence from an external regulator.
Australian investors looking at either High/Low or One-Touch trades should consider whether the broker offers expiry times beyond 60 seconds since these are often provided on some more popular platforms.
Finally, you should always check whether your broker offers the option to receive payouts in cash or if they require you to trade out first before any money is paid. Here is another fantastic article about technical oscillators.