THE HISTORY OF BINARY OPTIONS
The business world itself is quite an old one; as old as civilization itself, since we’ve always needed some means of exchanging goods and conducting transactions ever since people got together in large, organized groups. But even as the basics of business like profits and loss remain the same, there’s always some kind of evolution at work in this field. 50 years ago, the idea of an industry based entirely on something as abstract as information technology would have been unheard of, yet today we have giants like Google and Facebook that deal strictly in data.
In the same way, the ways we trade in business have also undergone change, especially just in the last 20 years alone. The traditional methods of buying assets at good price and then selling at a higher price at later time, or different place are always going to be the cornerstone of business. But speculative forms of trade like Forex in the 1990s and, more recently, binary options trading, have been making a lot of inroads and growing rapidly in popularity. So what about binary options trading? What is it? How did it get here? That’s actually a relatively short origin story that we’ll look into now.
Having A Choice: Options Trading
Before we get to binary options trading, we need to look at options trading, which got its start in the USA, back in the 1920s. Options trading is a pretty simple concept; a person agrees to buy an asset, like a stock or commodity at some point in the future for a fixed price. In order to make sure that price remains the same, a deposit is made and an agreement struck that recognizes that on the appointed day, the trader can come back and pay the remainder of the price, or, alternatively, not buy the asset after all, but at the sacrifice of the initial deposit.
This was a way to protect people against fluctuations in pricing. For example, If a breakfast cereal company knew that it would need several tons of a specific grain, but not right away, they get an options trade on, for example, 100 tons of wheat for $100 per ton, for a total of $100,000. The trader would put in a deposit of $15000 to lock in this option. This means that even if there was some catastrophe with wheat, and losses of crops mounted, and the price of wheat shot up to $300 per ton, when the purchase date arrives, thanks to the option trade, the breakfast cereal company can still buy the wheat at the agreed upon $100 per ton, not the new, crisis-related, inflated price.
The Rise Of Speculation
Eventually, people started making predictions and bets on whether or not the prices that options traders were investing against would actually go up or down. In one sense, this is a type of betting, but it gradually became more organized, and then entered the business world as a legitimate, officially licensed and regulated form of trade. It was the currencies of the Foreign Exchange market or Forex that first played host to this kind of speculative trading. That was for two big reasons. Forex trading was now being done with computers, which eliminated the high “price of admission” that trading previously had. With computers, people no longer needed huge, existing pools of capital in order to start trading, and they didn’t even need to hire—and pay—brokers every time they wanted to conduct a transaction.
The other factor that made speculative Forex trading so lucrative was fast, versatile results. Because the trading was based on the movement of prices, and not actually owning an asset, the whole nature of the game changed. Previous Forex transactions only made a profit when someone bought a currency and then sold it at a higher price due to fluctuations in exchange rates. Forex speculation trading meant that even if a currency was doing badly, as long as people made correct predictions about that downward price movement, they could still make money, and they could do it quickly. With modern speculative Forex trading, both speed and computers had fundamentally changed the way people traded, and had made it far easier for people to do so.
Binary Options Trading Arrives
It was in 2008, in the United States that binary options trading was first pioneered. The notions of speculative trading and the use of computers from Forex trading both became mainstays of this new form, but there were still a few changes made over the course of its development. Initially, only “call” options were available, which were predictions about prices moving up.
This quickly changed to include “put” options for trades predicting downward price movements. Eventually, the method of trading also became much more simplified, even more so than Forex trading. Binary options trading at this point truly began to come into its own. In addition to the simplicity and the low starting capital that was required for binary options trading, it was even faster than Forex trading. A binary options trader could make a profit in as little as 60 seconds, meaning it was possible to make more trades and make even more money over the course of a single business day.
But what really made binary options so popular was the inclusiveness of this form of trading. Forex trading, while fast and convenient, was confined strictly to currency markets. Binary options trading expanded its range of investment possibilities to include the Forex market, the commodities market and even the traditional stock market. This meant it was possible for binary options traders to dabble in one, two, or all three markets for a truly diversified portfolio of investments.
While it’s true that binary options trading is a very young format compared to the older practices, the same can be said of the technology it depends on, computers and computer networking. However, the usefulness and versatility of this technology and this trading has already catapulted it to a prominent spot in the business world. It may keep evolving, but binary options trading is here to stay.
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