Binary Options Trading
Binary Options, also known as Digital Options, all or nothing options or Fixed Return Options (FROs), have been available since 2008. They are simple for any trader / novice / expert to understand.
A Binary Option is in essence nothing more than a prediction on which way the price of a stock, commodity, index or foreign currency will move by a designated expiration time. With Binary Options, you never purchase or own the asset. You are only predicting the direction that the asset will go. There are only two possible outcomes, the price of the asset does not matter. As far as you are concerned, all that matters is whether or not you made the right prediction.
Binary options are a simple way to trade price fluctuations in multiple global markets, but a trader needs to understand the risks and rewards of these often-misunderstood instruments. Binary options are different from traditional options. If traded, one will find these options have different payouts, fees and risks.
Advantages of Trading Binary Options
Controlled Risk: The percentage reward is known from the onset, as is what you stand to lose.
Simplicity: You only need a sense of direction: ‘Will Google stock price increase/decrease by expiry?’
Attractiveness: For a profitable trade to take place there is only the need for the price to close ‘in-the-money’. The winning trade will receive the entire payoff, even if it was ‘correct’ by a single pip.
Hedging opportunities: A safer option to take if a trader has an open position elsewhere in currency, stocks etc. Utilising a binary option can eliminate a further loss elsewhere.
Punctuality: Binary contracts are being issued around the clock, allowing traders to trade on multiple time frames. There is always an expiration time arriving, which constantly yields new opportunities for binary traders.
Do the Advantages of Trading Binary Options Outweigh the Risks?
While there are some risks to be aware of when trading binary options, these financial vehicles can present a number of great benefits as well. In fact, one of the biggest benefits to binary options actually involves that fact that a traders’ risk is known from the beginning of the investment.
This means that it is known by a trader exactly how much he or she stands to gain or to lose prior to even making their investment. Therefore, even though a trader’s gains are fixed, so are the potential losses – and this can make it possible to move forward with the investment without the need to take on an undetermined amount of financial exposure.
The probably best way to get to know Binary Options trading better is by using a demo account. With such an account, you can trade under real market conditions without risking your own money.
A smart man once said: “never risk more money that you are willing to lose”. Not all the people that will trade binary options will win, some will lose big time, but if you are willing to learn and study trading, this might be a way to make a lot of money.
Personally, I consider this type of trading to be gambling and I do not recommend it!