Where Binary Options are traded and the Implicit Transaction Cost.

Where Binary Options are Traded?

Binary Options are enormously popular in Europe and are extensively traded in major European exchanges, like EUREX. In the United States, there are a few places where Binary Options can be traded. The Chicago Board of Trade (CBOT) offers Binary Options trading on the Target Fed Funds Rate. To trade these contracts, traders must be members of the exchange or investors are required to trade through such members to execute a trade - the value of each contract is $1000.Nadex: a U.S.-based, U.S.-regulated Binary Options exchange. Nadex offers a range of expiration opportunities (daily, hourly, weekly) that allow traders to take a view on market developments. The choice is vast. Indeed, there are over 2,400 Binary Options contracts each day. These range from popular currency pairs such as GBP/USD to key commodities such as gold and oil. All member funds are held in a segregated U.S. bank account, in accordance with CFTC regulation, adding an extra layer of security. 

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The implicit transaction costs of a Binary Option. 

Binary Options brokers do not charge any per-trade fees, nor do they collect any commissions. What percentage of the time would you have to be correct to profit from the binary option you are contemplating? How different are the terms (for instance, "strike price") for one side of the trade you are contemplating and the other side (or, more precisely, its reverse)? If they are far apart, one would have to successfully predict that the underlying assets would move far from what the option-sellers predict--generally something between the terms offered for different sides of a transaction--which would be unusual to occur. It is extremely rare and difficult to out-perform the market consistently, so high transaction costs can easily hurt or eliminate returns.