The ultimate goal of Chapter One will be to give you a simplified overview of Binary Options as whole. It means, you will learn a bit of history of options trading and you will also learn the concept of options trading, types of binary options available, concept of assets, etc. Thus, Chapter One will give you all the basic tools that you will need to trade as a beginner. This is what every broker and their affiliates say – you can trade without experience! Chapter Two on the other hand will pick up where Chapter One ends and will give you a few more concepts. We will get into that later. As of now, let us get started with Chapter One.
History of Binary Options
Binary Options was introduced for general public in 2008 on American Stock Exchange and Chicago Board of Exchange as a tradable asset. It was the same year when the US markets entered a subprime mortgage crisis and led to the collapse of Lehman Brothers and Bear Stearns. The effect gradually rolled out in global market and the global financial system collapsed leading to tremendous loss for investors worldwide. As a result of this, pressure came in for the introduction of an investment instrument that comes with low risk for the traders. The result was the binary options.
Despite the fact that binary options entered the mainstream only in 2008, this form of investment long existed and was limited only to institutional investors, high net-worth investors and banks and was used in OTC or over-the-counter market. Binary options trading actually started in 1973 on financial instruments. Options trading back then started only in Chicago Board of Exchange. At that time, there was no regulatory framework in place and there so no liquid market separately available for binary options. This continued until 2007. During the early 70s, OCC or Options Clearance Committee was created so that it could develop a regulatory framework for the options market. In 2007, with the onset of the subprime mortgage crisis, the OCC suggested that binary options being given the reputation of a financial asset with the capabilities of trading on its own in all major exchanges.
In 2008, the Securities and Exchange Commission of United States accepted the OCC suggestion and allowed the major exchanges to legally offer binary options as tradable standalone financial instruments. AMEX or American Stock Exchange started offering binary options in May 2008 and that was the first public appearance of binary options. Next month, Chicago Board of Exchange started offering binary options. However, at the beginning, trading in binary options was restrictive and cumbersome and only call options could be purchased and that too when traders purchased contracts on S&P 500 Index.
With the boom in information technology, several software were introduced for online trading and the trading platforms were also made available in mobile versions. This instantly gave binary options a major thrust. Over time, trading in binary options became easy because more and more exchanges started offering binary options. Hundreds of brokers popped up offering very simplified and extremely powerful trading platforms. With more and more exchanges offering binary options, the list of underlying assets offered for trading also increased.