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Binary Options For Dummies: A Binary Option is an option whose payoff is either a fixed amount or zero. For example, there could be a binary option that pays $200 if a hurricane hits Miami before a specified date and zero otherwise. Also called a digital option.
Binary options differ from more conventional options in significant ways. A binary option is a type of options contract in which the payout will depend entirely on the outcome of a yes/no proposition.The yes/no proposition typically relates to whether the price of a particular asset that underlies the binary option will rise above or fall below a specified amount. For example, the yes/no proposition connected to the binary option might be something as straightforward as whether the stock price of XYZ company will be above $9.36 per share at 2:30 pm on a particular day, or whether the price of silver will be above $33.40 per ounce at 11:17 am on a particular day. Once the option holder acquires a binary option, there is no further decision for the holder to make as to whether or not to exercise the binary option because binary options exercise automatically. Unlike other types of options, a binary option does not give the holder the right to purchase or sell the underlying asset. When the binary option expires, the option holder will receive either a pre-determined amount of cash or nothing at all. Given the all-or-nothing payout structure, binary options are sometimes referred to as “all-or-nothing options” or “fixed-return options.” 
The Simulator has been specifically designed to assist new traders to understand binary options trading basics.
The simulator is easy and fun to use:
Binary Options are designed to provide trading opportunities, even in flat market conditions where the market hardly moves at all.
This video introduces you to the important concept of a risk and reward ratio when trading binary options.
In finance, a binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. Thus, the options are binary in nature because there are only two possible outcomes. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and fixed return options (FROs) (on the American Stock Exchange). 
When buying a binary option the potential return it offers is certain and known before the purchase is made. Binary options can be bought on virtually any financial product and can be bought in both directions of trade either by buying a "Call" option or a "Put" option. This means that an investor can go long or short on any financial product simply by buying a binary option. Binary options are offered against a fixed expiry time which may be e.g. 60 seconds and up to 30 minutes, an hour ahead or to the close of the trading day.
The US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have recently issued an Investor Alert to warn investors about fraudulent promotion schemes involving binary options and binary options trading platforms.
Binary options contracts have long been available over-the-counter (OTC), i.e. sold directly by the issuer to the buyer. They were generally considered "exotic" instruments and there was no liquid market for trading these instruments between their issuance and expiration. They were often seen embedded in more complex option contracts. Since mid-2008 binary options websites called binary option trading platforms have been offering a simplified version of exchange-traded binary options. 
In 2007, the Options Clearing Corporation proposed a rule change to allow binary options, and the Securities and Exchange Commission approved listing cash-or-nothing binary options in 2008. In May 2008, the American Stock Exchange (Amex) launched exchange-traded European cash-or-nothing binary options, and the Chicago Board Options Exchange (CBOE) followed in June 2008. The standardization of binary options allows them to be exchange-traded with continuous quotations. 
Binary Options On The Chicago Board Options Exchange
CBOE Binary Options are a pure and simple way to trade based on your opinion of where a market is headed over a certain period of time. They are contracts that, at expiration, pay out a pre-determined, fixed amount or nothing at all. The payout amount for CBOE Binary options is $100.
Like traditional options, Binary Options are based on an underlying security, have various strike prices to choose from as well as various expirations. CBOE lists both call and put Binary Options. If, at expiration, the price of the underlying security closes at or above the selected strike price, the buyer of a call Binary Option receives $100 per contract. If the underlying security closes at a price that is below the strike price on the expiration date, the buyer receives nothing.
In the case of put Binary Options, the put buyer receives $100 per contract if the underlying security closes below the strike price at expiration, and nothing if the underlying security closes at or above the strike price at expiration.
In the United States, it is legal to trade binary options, as long as they are exchange based, as in the case of the North American Derivatives Exchange (NADEX), which provides a trading environment in which trades are executed via an exchange rather than clients ‘betting’ against the binary options firm itself.
CAN OFFSHORE "BROKERS" TRADE WITH US RESIDENTS?
According to NADEX: In the case of off-shore platforms offering binary options to retail customers in the United States, the answer to this question is a resounding "No".
As the Director of Enforcement for the CFTC stated in connection with a recently filed lawsuit:
"It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction’ contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt."
If your search the web looking for a binary broker you will see that most binary options brokers (platforms) are located offshore. Many of them do offer accounts to US clients, even though this seems to be illegal and there were already civil complaints filed. Usually these "brokers" are simply Internet based trading platforms offering binary options.
Most sites that recommend brokers get paid (often $200 or more) for each each visitor that opens an account with one of their "recommended" brokers. They are completely biased. There's thousands of sites that will show you the best best binary options brokers.
Below is an example (please note that since I am unbiased you will not find any affiliate links here)
USA Binary Options Brokers
Looking for binary options brokers that serve US customers? You may already have discovered that many brokers refuse to accept customers from the USA. This may lead you to believe that binary options trading is illegal in the US, but this is not correct.
Best Binary Options Brokers Accepting USA Customers
A Binary Option asks a simple yes/no question.
The price at which you buy/sell is not the actual price of gold, but rather a value between zero and 100.
The bid/offer price fluctuates throughout the day, but always settles at either 100 (if the answer is yes) or zero (if the answer is no). Your profit/loss is calculated using the difference between the settlement price (zero or 100) and your opening price (the price you bought or sold at).
Here are 2 interesting Reviews...Scam or Not?...You decide!
BINARY OPTIONS HOW TO LOSE A FORTUNE. JUST MAKE A DEPOSIT!
Binary options are a simple and rewarding financial trading product. Binary options deliver a fixed return on every trade which is made, depending on whether the trade was "In The Money", "Out Of The Money" or a "Tie".
If the EUR/USD has an even 50/50 popularity DO NOT TRADE there must be a bias one way, even if it's 49% -- 51%. That 2% gap means a lot in the world of binary options and currency trading.
Trading binary options with this system is fast paced. In order to catch the winning trade in the 5 point decimal base with your 5 trades you have to be quick. This is especially important in Step 4 below.
If you're using a laptop, you might want to use a mouse rather than the trackpad for speed, or if you have a slow mouse INVEST IN A BETTER ONE!
This is of vital importance, if you go and make a cup of tea between trades using this binary options system, then you may miss the necessary entry point to win and your odds will drop from up to 100% to 50% so BE QUICK!
Do not change the direction you are trading on midway between Step 2 and Step 5. If your starting trade at $5 is a PUT then continue through to Step 5 on PUT do not switch to CALL as your odds will drop from up to 100% to 50%. Also, if a trade comes out as a TIE, you should put on the same trade again as soon as possible.
Profit in 60 seconds again...
After each winning trade, ALWAYS check to see if the Popularity has changed from PUT to CALL, as shown in Step 1.
Important things to look for before choosing a Binary Option Signals Service:
1) Historically Probable Trades that have a profitable forward trading history and a reason behind the trades versus just simple subjective trades.
2) A Trade Log showing every binary option signal trade and not just highlights of winning trades.
3) Vital Stats: Profitable Days and Draw Days, Losing Days , Consecutive Profitable Days, Consecutive Losing Days, Maximum Drawdown.
4) Risk Management Plans
5) Easy Access To Signals (Text Message, Desktop Visual and Sound Notifications, Twitter, Trading Chat Room)
6) Longevity (Avoid startups and fly by nights)
7) A Trading Chat Room to help you with questions and to help provide even more trades in the trading chat room.
8) Webinars for Continuing Binary Options Education
9) Education on everything from basics to advanced Trading
10) Binary Option Trading Tools like a spread scanner, basic indicators etc.
Here's What The Authorities Say about Binary Options:
Please note that the text below is not the complete joined alert - you can read the complete alert here
The SEC’s Office of Investor Education and Advocacy and the Commodity Futures Trading Commission’s Office of Consumer Outreach (CFTC) are issuing this Investor Alert to warn investors about fraudulent promotion schemes involving binary options and binary options trading platforms...
...Some binary options are listed on registered exchanges or traded on a designated contract market that are subject to oversight by United States regulators such as the SEC or CFTC, respectively, but this is only a portion of the binary options market. Much of the binary options market operates through Internet-based trading platforms that are not necessarily complying with applicable U.S. regulatory requirements and may be engaging in illegal activity. The number of Internet-based trading platforms that offer the opportunity to purchase and trade binary options has surged in recent years. The increase in the number of these platforms has resulted in an increase in the number of complaints about fraudulent promotion schemes involving binary options trading platforms.
Typically, a binary options Internet-based trading platform will ask a customer to deposit a sum of money to buy a binary option call or put contract. For example, a customer may be asked to pay $50 for a binary option contract that promises a 50% return if the stock price of XYZ company is above $5 per share when the option expires.
If the outcome of the yes/no proposition (in this case, that the share price of XYZ company will be above $5 per share at the specified time) is satisfied and the customer is entitled to receive the promised return, the binary option is said to expire “in the money.” If, however, the outcome of the yes/no proposition is not satisfied, the binary option is said to expire “out of the money,” and the customer may lose the entire deposited sum.
There are variations of binary option contracts in which a binary option that expires out of the money may entitle the customer to receive a refund of some small portion of the deposit-for example, 5%-but that is not typically the case.
In fact, some binary options Internet based trading platforms may overstate the average return on investment by advertising a higher average return on investment than a customer should expect, given the payout structure. For instance, in the example above, assuming a 50/50 chance of winning, the payout structure has been designed in such a way that the expected return on investment is actually negative, resulting in a net loss to the customer. This is because the consequence if the option expires out of the money (approximately a 100% loss) significantly outweighs the payout if the option expires in the money (approximately a 50% gain). In other words, in the example above, an investor could expect, on average, to lose money.
Complaints Relating to Fraudulent Binary Options Trading Platforms
The SEC and CFTC have received numerous complaints of fraud associated with websites that offer an opportunity to buy or trade binary options through Internet-based trading platforms. The complaints fall into at least three categories: refusal to credit customer accounts or reimburse funds to customers, identity theft, and manipulation of software to generate losing trades.
The first category of alleged fraud involves the refusal of certain Internet-based binary options trading platforms to credit customer accounts or reimburse funds after accepting customer money. These complaints typically involve customers who have deposited money into their binary options trading account and who are then encouraged by “brokers” over the telephone to deposit additional funds into the customer account. When customers later attempt to withdraw their original deposit or the return they have been promised, the trading platforms allegedly cancel customers’ withdrawal requests, refuse to credit their accounts, or ignore their telephone calls and emails.
The second category of alleged fraud involves identity theft. For example, some complaints allege that certain Internet-based binary options trading platforms may be collecting customer information such as credit card and driver’s license data for unspecified uses. If a binary options Internet-based trading platform requests photocopies of your credit card, driver’s license, or other personal data, do not provide the information.
The third category of alleged fraud involves the manipulation of the binary options trading software to generate losing trades. These complaints allege that the Internet-based binary options trading platforms manipulate the trading software to distort binary options prices and payouts. For example, when a customer’s trade is “winning,” the countdown to expiration is extended arbitrarily until the trade becomes a loss.
Certain Registration and Regulatory Requirements of the SEC
For example, some binary options may be securities. Under the federal securities laws, a company may not lawfully offer or sell securities unless the offer and sale have been registered with the SEC or an exemption from such registration applies. For example, if the terms of a binary option contract provide for a specified return based on the price of a company’s securities, the binary option contract is a security and may not be offered or sold without registration, unless an exemption from registration is available. If there is no registration or exemption, then the offer or sale of the binary option to you would be illegal.
If any of the products offered by binary options trading platforms are security-based swaps, additional requirements will apply.
In addition, some binary options trading platforms may be operating as unregistered broker-dealers. A person who engages in the business of effecting securities transactions for the accounts of others in the U.S. generally must register with the SEC as a broker-dealer. If a binary options trading platform is offering to buy or sell securities, effecting transactions in securities, and/or receiving transaction-based compensation (such as commissions), it likely should be registered with the SEC. To determine whether a particular trading platform is registered with the SEC as a broker-dealer, visit the FINRA BrokerCheck website.
Some binary options trading platforms may also be operating as unregistered securities exchanges. This would be the case if they matched orders in securities of multiple buyers and sellers using established non-discretionary methods. However, there are cases where a registered broker-dealer with a trading system or platform may legitimately have no obligation to register as an exchange.
Certain Registration and Regulatory Requirements of the CFTC
It is illegal for entities to solicit, accept offers, offer to or enter into commodity options transactions (for example, foreign currencies, metals such as gold and silver, and agricultural products such as wheat or corn) with U.S. citizens, unless those options transactions are conducted on a designated contract market, an exempt board of trade, or a bona fide foreign board of trade, or are conducted with U.S. customers who have a net worth that exceeds $5 million.
To see the most recent list of exchanges that are designated as contract markets, check the CFTC website. There currently are only three designated contract markets offering binary options in the U.S.: Cantor Exchange LP; Chicago Mercantile Exchange, Inc.; and the North American Derivatives Exchange, Inc. All other entities offering binary options that are commodity options transactions are doing so illegally.
Further, entities that solicit or accept orders for commodity options transactions and accept, among other things, money to margin, guarantee, or secure the commodity options transactions must register as a Futures Commission Merchant. Entities that act as the counterparty (that is, they take the other side of the transaction from the customer as opposed to matching orders) for foreign currency options transactions for customers with a net worth of less than $5 million must register as a Retail Foreign Exchange Dealer.
Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) filed on June 5, 2013 a civil complaint in federal district court in Nevada charging Banc de Binary, Ltd. (Banc de Binary), a foreign company that held itself out as being headquartered on Wall Street, with violating the CFTC's ban on off-exchange options trading by offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting, and confirming the execution of orders from U.S. customers. The CFTC's complaint also charges Banc de Binary with operating as an unregistered Futures Commission Merchant (FCM).
According to the CFTC's complaint, Banc de Binary operates an online trading website through which customers can buy or sell binary (“call” or “put”) options, predicting whether the price of a certain commodity will increase or decrease in a given time period.
Specifically, from May 2011 through March 2013, Banc de Binary operated an online trading website which allowed U.S. customers to trade options products prohibited by the CFTC's ban on off-exchange options trading. Through its website, Banc de Binary allegedly unlawfully solicited and permitted U.S. customers to buy and sell options betting on the prices of wheat, oil, platinum, sugar, coffee, corn, foreign currency pairs, and stock indices.
The CFTC's complaint also charges Banc de Binary with operating as an unregistered FCM from July 2011 through March 2013. Finally, the complaint alleges the company did not limit its options offerings to eligible contract participants, allowing U.S. customers to trade without requiring any information about their trading history or net worth.
David Meister, the Director of the CFTC's Division of Enforcement, stated: “If a company wants to offer U.S. persons the opportunity to buy and sell predictions on the direction of commodity prices, the company must play by the rules or suffer the consequences. The applicable rules are on the books for good reason - to protect market participants and promote market integrity - and we will serve the public by enforcing them.”
The CFTC seeks civil monetary penalties, an injunction preventing Banc de Binary from engaging in certain commodity options activity with U.S. customers, and other remedial ancillary relief, including restitution, disgorgement, and rescission.
The CFTC acknowledges the Securities and Exchange Commission, the United Kingdom Financial Conduct Authority, and the Cyprus Securities and Exchange Commission for their assistance in the investigation of Banc de Binary.
Please visit the CFTC for more info: http://www.cftc.gov/PressRoom/PressReleases/fraudadv_binaryoptions
U.S. Government Required Disclaimer - Commodity Futures Trading Commission. Trading financial instruments of any kind including options, futures and securities have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the options, futures and stock markets. Don't trade with money you can't afford to lose. This training website is neither a solicitation nor an offer to Buy/Sell options, futures or securities. No representation is being made that any information you receive will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. Please use common sense. This site and all contents are for educational and research purposes only. Please get the advice of a competent financial advisor before investing your money in any financial instrument.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAN ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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