The Good (and the bad) on binary options.
Binary options have been available for trading on the major markets since early 2008. Since then many traders, both experienced and inexperienced, have given it a shot. Some have been successful in making money. Others have suffered big losses. So what is it that makes binary options so attractive? Well, one of the alluring features is that binary options offer a simple form of investment that anyone can easily understand. This short article hopes to shed some like on binary options as a whole, presenting both the pros and the cons of trading them.
Great profit potential
Binary options offer the potential to earn very high profits in a very short time frame. Depending on the type of option you purchase, and your broker of course, binary options can return anywhere between 70% and 650% on your investment.
Short Time Frame
Compared to other trading securities, binary options are very short term. With some options offering up to 80% payouts within expiry times as short as 60 seconds. For the less anxious and more patient, there are of course longer options available from hours to months.
Fixed and predetermined gains
No matter if your option ends up in the money or out of the money, you always know exactly how much you stand to win or lose on any particular position. Unlike stocks or forex, where your gains and losses constantly change, with binary options you always know what you stand to win or lose, making risk assessment that much easier. Your losses are also better managed as you cannot lose more than you invest. Unlike stocks and forex, you never trade on margin with binaries, so your account can also never go negative.
Binary options are easier to understand and trade than regular stocks and stock options. The interface is always very intuitive. Unlike forex and stock trading where you usually need to learn how to operate very complicated and elaborate software. This makes it an ideal tool for beginners as well as professionals.
Binary options brokers generally do not charge commissions for trades. This is significant when you want to perform a large number of trades and makes it possible to perform smaller trades without thinking about the costs of commission. Some binary options brokers allow trades as small as $5. This would of course not be feasible with stock trading where often the minimum commission is in itself anywhere between $5 and $12.
Low Minimum Investments
Because of the non existent commissions of binary options, it really helps that most brokers have a very small minimum investment requirement. That means you can invest as low as $20 sometimes. This is great for new traders who want to start small and learn the ropes before digging deep into their pockets. You also know that the most you can lost is your initial invetment. This means that if you start small at $20 for example, you stand to lose only up to those $20, unlike stock trading where using margin can cause you to lose more than you even have in your trading account.
Large Potential Losses
As stated before. If you miss on your prediction with binary options, you stand to lose your entire investment. On the other hand, the amounts you need to invest in order to achieve good returns are much lower than those of stocks or stock options, evening out the potential losses and not making it much more than those.
As with all stock market related trading, there is no such thing as a sure thing. You are going to make mistakes and lose money. The key is to find a system that works for you so you win more than you lose. Understanding this is possibly the first step to success with binary options trading.
Not all assets are listed
There are over ten thousand stocks and stock options listed in the NASDAQ, AMEX and NYSE combined. With binary options you can only trade a fraction of them, limiting the flexibility by a great deal. The plus side is that this will allow you to familiarize yourself with a small number of good stocks, all of which have very high trading volume, making their movements somewhat easier to predict.
Some sketchy brokers
Just like with regular stocks and stock options, you need to do your homework before choosing your binary options broker. There are a number of very good and trusted brokers, but there are just as many sketchy ones. This is key if you plan to succeed.
Binary options are not for everyone, but they do offer flexibility and can be friendly to beginners. Those who manage to trade them right can indeed make a lot of money. The benefits definitely outweigh the downsides. However, as with all trading, do your homework first and make sure you know what you’re getting yourself into before starting.
The best thing you can do is check out some binary options broker reviews and see for yourself which broker is better for you.