For those of you who haven’t heard, it is now possible to trade binary options on some exchanges. This adds a layer on top of the binary options cake, which could prove a delicious treat, or give you a fatal heart attack. Let’s see why:
Where does the exchange fit in?
What made binary options so appealing to most novices, even those who had no intention of getting involved in financial matters, is the fact that they know exactly how much money is at stake, and how much they stand to gain. This, coupled with the lack of liability for the underlying instrument, made binary options soar higher than anyone could have guessed. But they always had their limits: the outcome was a binary one: either the price is above a certain point or below; you either guessed correctly or you lost money. Exchange traded binary options introduced a third outcome: with them, you were no longer committed to the end; you could sell binaries and recover losses, or try and get into the game mid-way and score some easy money. On the exchange, binary options have some value until the end. Naturally, one-touch binary options are slightly different, as once they are in the money, you’ve won, but other types of binary options are much more prone to pressure and suspense. Naturally, if an exchange-traded binary option is in the money, its current value would be much higher than the one that is out of the money; still, nobody is going to pay you the full amount, so the best you could hope for in these cases is to either recover some of the losses (for out of the money binary options) or cash in early (for in the money binary options).
Why go for the exchange?
This is not exactly a novel thing in terms of binary options; even before there were exchanges, some brokers would allow their clients to cash out early, albeit under strict conditions, and it mostly referred to binary options that were in the money. This enabled brokers to reduce losses and their clients could take the easy way out, (at the cost of a sizable part of their profit). What makes exchange traded binary options appealing is the flexibility they offer, increasing the options at your disposal. Normally, with most of the regular binary options all you could do was sit back and relax, and let the chips fall where they may. Now, you no longer have to. Traders who prefer long-term binary options will find the most use for this versatility that exchanges provide them, as they can always close early and lock in the profits; let someone else take the risk. Or, you could pick binary options that are already in the money, or close enough, and buy them off. Basically, you trade money for (relative) safety; the proceeds may be lower, but much more certain than usual. Or, you could just trade normally instead.
Nadex is a regulated exchange in the U.S. where you can become a member and trade directly on the exchange as a retail participant. It is a Designated Contract Market and Derivatives Clearing Organization, subject to regulatory oversight by the Commodity Futures Trading Commission (CFTC).