An appetite for risk is healthy or unhealthy depending on the investor. During the bull market of the 2000s, risk was tamed, or so it was thought. Risk could be mathematically modeled and countered so thoroughly that it could be eliminated. This was proven spectacularly false in the ensuing real estate and stock market crash from 2007-2009. Investors were severely burned in this crash. Many retail investors have fled the stock market and into markets perceived as safer, such as bonds and cash equivalents.

Investors still participating in the stock market are seemingly as optimistic as ever. Attitudes toward risk have definitely changed however. Investors are interested in protecting themselves from so-called "black swans," such as the recent crash. This practice is known as hedging. Popular tools for hedging positions and portfolios are options and futures contracts. These are known as derivatives because their value is derived from the value of an underlying security like a stock or bond.

An option contract gives the purchaser the right to buy or sell a specific amount of an underlying security. The contract has a due date, after which it expires and becomes worthless. The right to buy or sell must be exercised prior to that date. The basic idea behind the option is actually used all the time. Renters who sign rent to own agreements are options traders. The rent to own agreement gives the renter the right to purchase the rented property at a future date.

Options come in two varieties, calls and puts. A call option gives the right to buy, and a put option gives the right to sell. These two types of options translate into four types of participants in the options market: buyers of calls, buyers of puts, sellers of calls and sellers of puts. Due to the nature of the options trading contract, each of these participants has specific rights and obligations. For example, since a stock call option gives the buyer the right to purchase a certain number of shares at a future date, the stock call option seller must be prepared to deliver those shares.

These derivatives trade at certain prices, just like the securities they derive their value from. Buyers of calls and puts have to pay the nominal price of the contract in order to make the purchase online trading. The hope is that the value of the contract will rise because the value of the underlying security will rise or fall.

Obviously, binary options have enormous potential for hedging against risks that are present in the capital markets. An investor who is long on a particular stock can hedge his position by selling call options. This has the added potential benefit of increased income, due to the price the buyer of the call option pays. This is known as the "covered call" strategy. Binary options trading has the ability to dramatically decrease the total amount of risk while protecting the ability to earn profits.