Binary Options Definition and Regulation

Binary Options Definition

With so much having been written on the Internet concerning binary options, many people still have no idea of what exactly they are. Many have been misinformed by inaccurate information about these trading instruments. This article will attempt to clear the air and give you a better understanding of binary options.

An exact binary options definition is difficult to come by and this is one of the problems with this instrument when it comes to regulation. The only explanation that comes close to capturing the essence of a binary option is: A derivative attained from the price of a security or an asset whose payout is determined by an outcome of 0 or 1, or multiples of 10. This definition however does not take into account the time period within which payout can be made, the level of risk and the price format.

Technical binary options definition

If you’re getting lost in the explanation, consider this; all capital market instruments can be thought of as binary options. This is not far-fetched; just think about computer software for a minute. High-level languages such as Java which programmers can use easily, are really based on machine code which is composed essentially of 1s and 0s. Conventional stock market options can be seen as a structure of vanilla binary calls. Even the most complicated market can be defined in terms of binary options if the barrier option is seen as a simple Yes/No event. This is how regulators need to think of binary options in order to demystify them and properly oversee them.

Binary Options Definition and Regulation

If regulators decide that the definition of binary options given above is not a true reflection of their full function or capacity, regulation of binary options will be a tricky affair. But binary options trading online by ordinary people is so popular now that it is moot point whether the industry can be regulated at all.