There are many reasons for and against trading binary options online. In this short article we are going to tell you more about binary options and why one should or should not go for it. Let’s dive in.
What are binary options?
Briefly, binary options are a derivative financial instrument. It is designed to be as simple as possible, although in the recent years the whole industry has received a major update and binary options have become quite sophisticated. Nevertheless, when binary options trading is compared to any other forms of financial trading, it is clear that binaries are the simplest.
Even though binary options have started gaining some traction this century, the whole history of those lasts for more. You can learn more about the history of binary options here.
In its essence, binary options is quite similar to any sort of betting, the main difference is that you are not betting on a certain team or a player, but you are rather betting on a certain financial outcome of the price fluctuation. As with any sorts of betting, the house always has an edge. With binary options you typically get a payout of some 75-95%. Hence, when you are getting a $100 put option on EUR/USD, you can expect a payout of around $185. This way, getting options in two reversal directions (put and call) each valued at $100 ($200 in total) would result in a loss of $15.
Advantages of binary trading
The main strong point of binary options is its simplicity. You can get a gasp of financial trading with a very limited knowledge. Unlike Forex, stocks and other types of financial trading that involve various terms as a margin call, stop loss, SWAPs, commissions and so on, binaries are very simply. You only need to predict the direction of the price and you are good to go. Of course, to be successful with binary trading you also need to perform some sorts of analyses, yet it tends to be way less complex.
Apart from that, another strong point of binary trading is a potential size of your gain. With other types of trading you are actually earning (or losing) as much as the price moves. However, with binaries you make the same money whether the price has moved 1 or 1000 points. Hence, it is much easier to earn big on binaries when the market is not volatile. However, same applies to the losses.
Finally, the fact that your losses are limited to your deposit are a great thing about binary trading. A year ago lots of FX traders got into financial obligations due to their trades on CHF. The reason for this was rather simple, their positions were closed at such price that resulted in a negative balance. And someone has to settle this negative balance with the liquidity provider.
Weak points of binaries
The main disadvantage of binary trading is the lack of control. Once you have placed entered into a position (even if it was done mistakenly!) you are committed. Unlike stocks or Forex, where you can just close your position and pay out the spreads and / or commissions, with binaries your bet is on a table.
Apart from that, there is quite some criticism of binaries due to its simplicity. Keep in mind that binary trading is very risky and, sometimes, you do have to count on a “luck” factor, especially if you get binaries with an expiration of less than 30 minutes.