Published On: Sat, Nov 17th, 2012

History of Binary Options

The concept of option trading is not a new invention as it has existed for some considerable time. However, only institutional and professional traders were able to take advantage of the many benefits of this investment type in the early days. Transactions were conducted as over-the-counter transactions under minimum regulatory supervision. The Chicago Board of Trade attempted to radically change this perception in 1971 by creating the Chicago Board Options Exchange (CBOE). The CBOE became the first-ever regulated options trading exchange and has managed to retain its status as the premier site for this investing activity in the world to this day.

During the subsequent years, continuous efforts were made to enhance the quality of option trading transactions resulting in the eventual founding of the Options Clearing Corporation (OCC). The prime mission of the OCC was to ensure that investors received their option purchases exactly to the specification as advertised. The OCC was granted the legal power to impose bans in cases of malpractice.

Out of all this activity, the concept of binary options was born using a specific specification to generate a more user-friendly and less complex trading vehicle based on the structure of the standard option. Although this development was, without doubt, an impressive step forward, binary options still remained the exclusive preserve of institutional investors who continued to operate in a market with restricted supervisory control and limited liquidity.

The next important milestone occurred in 2007 when the OCC submitted an important rule change to allow binary options to be traded on the major financial exchanges. In early 2008, the US Securities and Exchange Commission endorsed this ruling enabling binary options to be legally listed on the major stocks markets for the very first time. Subsequently, Wall Street became the first exchange in May 2008 permitting the general public to trade binary options. In June, the CBOE followed suite.

These significant events opened the floodgates producing a boom in the popularity of binary options trading in subsequent years. This trend received an additional boost from a surge in production of very powerful binary options trading platforms and tools. In addition, new improvements in the structure and operation of on-line binary options were developed providing an increased diversification in expiry times, asset selection contract types, payouts and refund ratios. These advancements enabled a wide range of innovative strategies to be developed targeting optimum profits with minimum risks.

This vibrant industry proceeded to attract more new brokers, many of whom introduced innovative features and more powerful trading platforms in their constant efforts to lure custom. Another major constitutional change occurred in 2010 when significant alterations were filed to improve important binary options’ features, such as their fixed rewards, risks and odds. A successful approval bolstered the image of binary options even further. In addition, brokers implemented a further series of advancements which substantially increased the simplicity of binary options trading by providing clients with the ability to trade from their own homes or on the move.

Binary options possess many advantages compared to more traditional forms of investment which have helped them to become the most popular and fastest growing trading vehicle within the investment business in modern times. For example, investors just need to focus on predicting in which direction the price of an asset will advance without considering the size of the movement. In addition, investors do not need to develop sophisticated risk and management strategies to trade binary options because their contracts will always advise their exact payout and refund ratios even before their positions are activated.

In addition, extended leverage facilities are associated with binary options trading allowing investors to open large positions using minimum deposits. Consequently, many traders have discovered that the simplicity of binary options enables them to trade other markets, such as currencies, stocks and commodities, more successfully as opposed to doing so directly. Investors can increase their profit potential even more and minimize their risk exposure by devoting their time to learn an extensive selection of binary option trading strategies. With all these advantages available, you can readily understand why binary options have evolved from total obscurity to such popularity in a relatively short period of time.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.