In the current market scenario of stock and forex trading, trading binary options has emerged as an independent trading field, with a separate niche as traders around the world are gravitating towards its potential. For traders unfamiliar with this terminology, a binary option is a fairly new type of trading option, where certain stipulated conditions have to be met. Depending on their implementation, the trader would receive either a fixed amount of profit or no amount at all. One of the main stipulations depend on a particular asset’s exchange price and whether it is above or below a certain predetermined level. Traders usually get attracted to the potential of increasing his/her capital by at least 60 to 80 % depending on a successful prediction.
The Popularity of Digital and Binary Options in Europe
The introduction of binary options can be traced back to the year 2008, which immediately became popular as a tool for trading after its launch. One of the reasons why binary options trading has become so popular is its similarity to sports betting. Just like sports betting, binary options trading also allows a trader to increase his/her capital by a significant percentage, upon making a successful forecast, which in this case is the value of the asset in question. For this reason, binary options is also known as financial betting in some circles. In the case of binary options trading, the outcome almost exclusively depends on the trader’s skills to analyze the market, in order to make the right decision at the right time.
With the success of binary options trading, another alternative trading tool, called Digital Options has also been introduced in the global binary options market. Compared to normal binary options trading, digital options offer a significantly higher degree of freedom as well as a higher earning potential, the profitability of which is predetermined. Under Digital options, a trader can vary the amount of profit and risk on a trade by adjusting the “strike price”. By adjusting the strike price, a trader can receive higher profits if they push the strike price away from the current level of prices. His/her profitability will be decreased if a trader moves the strike price closer to the current price level, which would also decrease the level of risk to be undertaken.
Introduction of ESMA Restrictions in European Market
The popularity of both binary and digital options has been growing exponentially, much of which can be attributed to the growing user bases of the popular trading platforms such as IQ option. This has attracted the attention of the European Securities and Markets Authority (ESMA) which had earlier overlooked the potential risks associated with binary options trading. Particularly, back in August 2018, the ESMA decided that binary options do not pose any significant threat to retail investors and would thus not be covered under the new measures.
The renewal of the restrictions on Binary options can be attributed mainly to the introduction of certain restrictions on the selling, distribution and marketing of CFDs. Thus, it was announced on September 21st, 2018, that the ESMA had decided on extending current restrictions to include binary options trading as well, citing “significant investor protection concern” as one of the major reasons. The renewal of the restrictions, which have taken affect as of October 2nd, 2018, would make the distribution, marketing and selling of binary options in Europe to Retail Investors as unlawful.
FX Options Trading at IQ Option
Because the ESMA restrictions strictly forbid the marketing, buying and selling of both digital and binary options to Retail Investors of the European union, several trading platforms have been working to introduce an alternative. IQ Option, one of the most well-known and biggest binary option brokers, has recently introduced FX Option Trading, a revolutionary new trading instrument that combines forex trading with options.
With the option of trading in 6 currency pairs, FX Options is significantly different from binary options trading. In simple words, a trader has to select his/her investment amount and an expiration time, after which a strike price is decided. After choosing the strike price, the trader’s profit or loss would depend on his/her prediction, whether the price of the asset will be higher or lower, when the time expires.
Because of the recent ESMA restrictions which have virtually outlawed binary options trading for retail investors in the EU, alternatives like FX Options trading can be considered by many as a way out. The risk and potential profit of an investment depends entirely on the trader in question. This is because FX Options trading does not fall under the ESMA restrictions, therefore being open to retail traders in the EU and elsewhere.
Published by Daphenee Plaisir