In 2008, there were two major innovations that came into the world and changed the way we look at finance. One was the introduction of the financial derivative called binary options, which impacted online retail trading. The other was the introduction of a payment system using the crypto-currency called Bitcoin.
What is Bitcoin?
In essence Bitcoin is a digital currency, which is no physical entity, but rather exists as balances on a public ledger encrypted with both public and private keys. Learn more about Bitcoin on wikipedia.
Created by a mysterious individual or a group of individuals known as “Satoshi Nakamoto”, Bitcoin was designed to facilitate online payments without a centralized authority. Because of the anonymity that it offers and its decentralized nature, Bitcoins have started to become popular as an alternative means of a safe haven for wealth.
Binary Options Explained
Binary options are a type of financial derivative where the payout of the option is designed to be a fixed amount. It is called “binary” because the outcome of the option is dependent on a yes/no proposition. Essentially, an investor just has to determine if a specific event will happen or not. It is because of the simplicity of how binary options works that make them so popular among the small time retail traders.
Trading Bitcoin Binaries
Sensing a new opportunity with Bitcoin and binary options, some innovative brokers have come up with ways to trade binary options and Bitcoin together. There are essentially 2 ways to trade Bitcoin binary options. The first method is by using Bitcoin as a medium of Exchange. The second method is by using Bitcoin as an underlying asset.
Bitcoin as a Medium of Exchange
When it comes to using Bitcoin as a medium of exchange, traders will be trading the various underlying assets in financial markets with Bitcoin. For example, they may be trading the EUR/USD currency pair and call upon a rise or fall upon the expiry of the binary option. So if their trade is successful, they will be paid in Bitcoin instead of fiat currencies like the U.S dollar or Euro.
You might be wondering why anyone would just want to accept Bitcoin when getting paid in U.S dollar as always been fine before. The first benefit of transacting in Bitcoin is the fact that the cost of transaction is the lowest among all forms of online payment. This is the very reason why Bitcoin was created in the first place, to lower the cost of online transaction. Since there is no central authority managing Bitcoin, no service fee is paid when receiving or transmitting payment.
Another key reason for traders to use Bitcoin in Binary options trading is to earn extra Bitcoin. Bitcoin by itself is traded and its value to the U.S dollar varies according to the demand for it. By having all the trading transactions denoted in Bitcoin, a trader is able to shield himself from the fluctuation of this crypto currency while at the same time earn more of it through profits earned in trading.
Nevertheless, it should be noted that this form of trading is however confined to binary brokers who will accept Bitcoin as a medium of exchange. In other words, there are only a limited number of binary options brokers which fall into this category. For the benefit of readers, we have compiled below a list of this type of binary brokers (Type 1 Brokers) that are reliable and popular among traders.
Bitcoin as an underlying asset
Another method of trading Bitcoin with binary options is to regard Bitcoin as an underlying asset. As mentioned earlier, Bitcoin itself is traded on specialized Bitcoin Exchanges. Its exchange rate in relation to the U.S dollar rises and falls in accordance to the demand for it.
For example, during the Cyprus banking crisis in 2013, loss of confidence in Euro led to investors switching their safe haven of wealth from the Euro to Bitcoin. This sudden surge in demand for Bitcoin helped to push its value up to almost on par with the value of gold prices. Because of this volatility, some binary brokers began introducing binary options contracts which tied to the value of Bitcoin. In other words, Bitcoin is traded just like any underlying assets that we find listed on most binary brokers’ platforms. For the conveniences of readers, we have also compiled a list of this second type of binary brokers (Type 2 Brokers)
Types of Bitcoin Binary Options Brokers
As mentioned earlier, there are two types of binary brokers dealing with Bitcoin Binary options. For the sake of convenience and clarity in this article, they are classified into Type 1 and Type 2 Bitcoin binary brokers.
• Type 1 Bitcoin Binary Brokers
Type 1 Bitcoin binary brokers are those brokers who offer trading opportunities in Bitcoin binaries with Bitcoin as the underlying asset. The most commonly traded binary options for bitcoin is in the form of BTC/USD as a currency pair. At present, there are only a handful of binary options brokers that are offering Bitcoin as an underlying asset. They include:
24Option is one of the first few binary option brokers that are regulated by the Cyprus Securities Exchange Commission (CYSEC). They have always been known to be a market innovator and hence it is not surprising to find them offering the public the opportunity to trade in binary options for the BTC/USD pair. Full review of 24Option.com.
This is another leading binary option broker that is offering Bitcoin as an underlying asset. Established since 2008, Anyoption is regarded as a pioneer in the binary options trading industry. Here at Anyoption, Bitcoin is traded as a “Special” option where traders determine if prices will “touch” or go above a certain predetermined level. Full review of AnyOption.
Launched in 2011, TradeRush has been credited as the broker who first introduced 60 second binaries to the binary options trading community. Hence, it is only to be expected that they are one of the handful of binary brokers that offer the BTC/USD binary options for trading. Although they are not regulated by any regulatory authorities, they have managed to attract a loyal of following of loyal traders largely due to the extensive portfolio that they are able to offer for trading. Full review of Traderush.
• Type 2 Bitcoin Binary Brokers
In this category of binary options brokers, the brokers that are listed here use Bitcoin as the medium of exchange. In other words, the prices of binary options traded are all quoted in Bitcoin. The benefit for traders here apart from the profit of a successful trade is that they get to earn the binary options broker’s Bitcoin as well.
Established by a bunch of Bitcoin enthusiasts, ActionCrypto.com offers a way for traders to trade in the fluctuation of Bitcoin prices through binary options quoted in bitcoins. The minimum trade amount is Ƀo.1 with a payout of 1.29X. This means if your trade with the amount of Ƀo.1 invested closes in the money, you will get a return of Ƀo.139 (0.1 x 1.29). Prices of the options area derived from a combination of prices streamed from Bitfinex,Bitstamp, Okcoin and BTC-E. Trading opportunities are availability 24/7.
They claimed to be the “world’s first Binary Option trading platform that accepts the Bitcoin currency”. Apart from offering traders the opportunity to trade in Bitcoin prices, Satoshi Option also offer traders several other types of underlying assets to trade in. Altogether, there are 9 different types of bitcoin binary options contracts offered, 5 types of currencies, 3 types of commodities and one market index.
Drawing prices streamed from bitstamp, BTC Oracle allow traders to trade in the fluctuations of Bitcoin prices using binary options. The platform allows traders to choose from the following timeframes for the expiry of the options:
• 15 minutes
• 3 hours
• 1 day
• 3 days
• 7 days
Once the timeframe has been chosen, traders will then be offered a price multiplier which will in turn determine how they will earn if they close in the money.