Binary options trading is an incredibly interesting topic. It’s also a fairly new way to invest; one that many newcomers are becoming interested in.
Consider the following advantages and disadvantages when trading Binary Options:
Trading binary options can be a great experience for investors who take the time to learn the market before investing. With that said, there are several advantages you can count on when trading.
- Fast Returns – With most investments, you’ve got to wait months or years to start seeing high levels of profits. When it comes to binary options, it’s possible to see returns in as fast as 60 seconds. As a matter of fact, most binary options traded have expiry times of 1 day or shorter.
- High Returns – One of the most appealing aspects of binary options is the high returns associated with the trades. In most cases, you’ll see return rates at 70% or above; that’s not something you’ll generally see in the stock market.
- It’s A Numbers Game – Based on the average binary options trade, you only have to be right 55% of the time to break even. Keeping this in mind, it’s easy to see that by doing your research and making smart trades, you’ll generally come out ahead.
- Risk control – With binary options the return on initial investment is fixed from the beginning, so the amount of possible profit or loss is well known. This means that you’ll never lose more than what you expect and can determine your risk as completely as is possible. There’s a limit on how much could be earned or lost in one trade.
- Short-time trading (daily, hourly) – with binary options you decide what the expiry time of the option will be. If you are a fan of long-time investments, you can choose “end of the week” and “end of the month” expiry times. However, most traders prefer shorter time frames.
- Low minimum amounts – Binary brokers have low investment minimums, thus allowing you to start with small amounts. With most brokers you can start trading with as low as $20. If you are familiar with stock market trading, you probably know that you need a decent amount of preliminary investment capital for brokers, commissions, etc.
- 100% Online trading – binary options are traded on online platforms and therefore you don’t need any software downloads. Trading is available from anywhere; all you need is a computer and internet access.
- Simplicity – Trading Binary options is very simple and straightforward; all you need to do is decide which of the two directions the asset will move, up or down.
Binary option trading is a form of investment. That means that although there are advantages, there are of course going to be disadvantages. Here’s the downside to trading binary options…
- When You Lose, You Lose – When you purchase stocks, if the price of the stock goes down, you can sell and recuperate some of the initial investment you put in. This is not the case with binary options because your prediction is going to be correct, or not. You don’t purchase tangible assets. There’s nothing to sell off when your predictions are incorrect.
- Brokers Fee – The brokers’ “fee” is embedded in the business model of a binary options brokerage. You buy the options contracts from the broker, if you win, the broker will pay you out about 71% to 85%. If the contract expires “out of the money”, some brokers will refund a small percentage of the principal. The broker gets the difference between the sum that they keep on a losing trade and the amount they pay out on a winning trade.
- Lack of supplementary tools– major idea behind Binary Options trading is to guess whether the asset price will go UP or DOWN. So traders have not much of a choice rather than 2 options – CALL and PUT (UP or DOWN). That is the reason why during binary option trading you will not see candles, graphic elements, etc.
- Lack of demo accounts– due to extreme simplicity of the Binary Options Trading (you only need to prognoses if the asset price will go up or down) binary options platforms (brokers) usually don’t offer demo accounts which we are so used to in online Forex trading.