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.
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.
