Binary Options have taken the financial world by storm, offering a system of e-trading that lets any investor participate in the financial markets with low investment amounts and limited risk.
Binary Options are transparent: they are F.R.O’s, Fixed Rate Options. When a trade is made the investor knows all details (when the trade will close and what the payout will be). This is what sets binary options apart from every other form of option trading. Being creates F.R.O’s is a major risk management tool that is only available for investors trading binary options, since all the information about the option is disclosed from the beginning of the trade.
Nonetheless, when you invest in an option you are making a ‘bet’. It just happens that what you’re betting on is which direction the underlying asset will move by the end of the expiry time. So Binary Options are a form of gambling; however, with financial regulations, Binary Option Brokers don’t care to be associated with the gaming industry.
Now that we are being completely honest with ourselves about our investments/bets, let’s talk about how we can make some money trading Binary Options. As a day trader you don’t care if an asset rises or falls. Remember you do not own the asset, you are only betting on the future direction that it will move in, either up or down. If the asset falls and you predicted it would, then you’re a winner.
Binary Option investors must accurately predict the movement of the asset’s value and if the prediction is correct, even by a just one single pip point, then the investor will receive the predetermined payoff.
What I appreciate about binary options is the transparency. When I put money down on a trade I know exactly what my payout will be. In this sense, Binary Options are more similar to a sports bet or a table game than a traditional option investment, because when I place a bet on any other form of gambling such as poker, blackjack or a sports bet, I know precisely what the payout will be if I have a winning ticket.
With traditional options the investor has no idea what the possible outcome of the investment will be, while a Binary Option tells you exactly what the payouts are. The trade lands ‘In the Money’ or not.
With Binary Options there are no surprises.
Traditional Options are risky because if you purchase shares of a company or a commodity and the asset tanks, your money may be lost or tied up for a long period of time. This means that you’re investing blind, since the parameters of the trade are unrestricted and have no boundaries. The payoff for winning a Binary Option Trade is stated when the investment is made. In situations where the investment closes ‘In the Money’ at the expiration time, the trader will receive the value that the platform offered as a ROI, return on investment. One-Touch Trading may provide payout rates over 600%, while standard Call/Put Trades have payout rates over 89%. While the possibility of netting profits is all-too-real, so is the chance of losing your money. There simply is no way of guaranteeing how any option will perform, especially short term options such as 60 Second Trading.
Binary Options should never be considered a method to get rich quick. The process is more than just predicting Up or Down. You must be involved in consistent analysis of the market – Subscribe to DayTraderGuide’s Newsletter.
Considering the nature of the Binary Option investments, it begs the question “Is the trading process an investing process or is it a gambling process?” Well, it’s all about the attitude you possess. Anyone who does not understand the limitations of the process and ventures into it with the idea of trading binary options as a get rich quick scheme will be disappointed, as I assure you that you can lose money trading Binary Options just as quickly as you can make it. That is why you need to make use of money management strategies, such as the 8% Risk Management Rule, to assist you.