Binary options trading has grown in popularity over the years for its apparent simplicity. By essentially removing the grunt work from trading (like technical and fundamental analysis), binary options are spreading like wild fire throughout the online trading world, especially among new and inexperienced traders looking to make quick money. However, a closer examination at this trading method reveals more risk than the marketing ads care to explain.
In financial trading, a binary option is a kind of option that can take only two possible outcomes: a fixed monetary amount or nothing at all. This “cash-or-nothing” trading method contrasts significantly with other financial options or trading in general, which have a much wider spectrum of payoff. In traditional or conventional trading, gains and losses can be incremental and are governed by things like asset performance over time, leverage and stop losses. In conventional trading, a loss may turn into a gain (or vice versa) if held long enough.
Binary options trading, on the other hand, is akin to placing a bet every 15 minutes to an hour (because that’s when binary options contracts usually expire). If the asset moves in the direction you bet on, you get to keep the advertised return. However, if the asset moves in the opposite direction (no matter how incrementally), you lose your entire sum.
Unlike conventional forex trading, for example, binary options are subject to capped profit amounts, which means traders don’t enjoy unlimited upside in the event they choose a winning trade. Binary options also carry with them very precise profit and loss points, which means the difference between winning and losing can be as narrow as 0.0001 points.
If you decide to access binary options, you should approach them in the same way you’d approach any other trade. This means creating a sound investment plan and only choosing markets you are familiar with. If you’re new to the financial markets, binary options probably aren’t for you. Your time is better spent learning about the markets, practicing with demo accounts and trading in real market conditions when you are ready.
If you decide to try binary options, choose a broker or platform that is regulated and highly reputable (the latter may be difficult given that this is still a relatively new trading method). Unfortunately, many binary options providers are still not governed by leading regulatory agencies like the Securities and Exchange Commission (SEC). International regulatory agencies have warned traders against depositing money into unregulated binary options platforms.
While it’s easy to see why the yes/no proposition of binary options is appealing, traders should exercise a great deal of caution in entering this market. As a form of speculation, binary options carry more risk than many other conventional investment strategies that rely more heavily on skill, strategy and analysis.
Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose.Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).
 Mc Binary. “What Risks Are There When Trading With Binary?”