Some people say that succeeding in trading binary options depends on nothing but luck and is more similar to gambling than to other forms of investing. In spite of this criticism, binary options are rapidly becoming more popular for both professional and novice traders. Here are seven reasons why the binary options are the new 'thing'.
1. Binary Options Are Mere Gambling
First, there are a few questions that come up. Are the binary options a realistic way of making money if one has the right skills? Or are they a little more than gambling? In spite of sometimes being compared to betting on sporting events, an intelligent trader can make money in the binary options market just as well as they can in any other form of trading. It is skills and knowledge, and not mere luck, that is required to succeed at trading binary options.
2. Not a Get-Rich-Quick Career
Can one get rich quickly with binary options if they pick the right stocks? Binary options are not exactly something that one can get rich off of overnight. With a typical investment in a new company that is rapidly growing, one can, although this is uncommon, see their investment become worth hundreds or thousands of times what it was worth before. Such an enormous return on investment is not possible with binary options.
3. The Way They Work
How do binary options work, and how are they different from other stocks? If one purchases a binary option, they are hoping that the value of a particular stock will be above or below a certain level at a certain point in the future. For example, one could assume that gold will be worth more than $1300 at 4 PM next Tuesday.
If they are right, the binary options they purchase will increase in value to $100. If they are wrong, their binary options will be worth $0. Therefore, one only has to get a single yes or no question right to make money off of a binary options trade. If one buys a binary option for $25, then they can either lose $25 or make $75 for each binary option they purchase.
Of course, safer investments result in lower returns. If investors are mostly sure that the price of gold will be above $1300 on Tuesday, then a binary option might cost you $90. In that case, one can only earn $10, but lose $90 if the price happens to be just a little lower than most investors expected. Even if the price of a stock increases enormously, those who purchased binary options will make only a relatively small profit.
4. Binary Options Allow Investors To Take Risks in Any Market
Binary options are a way of making high-risk investments in low-risk markets. If the price of a stock has changed very little for a very long time, then an investor is not likely to gain or lose much by speculating on this stock.
However, a binary option for such an investment may be selling for $50. An investor might believe that the price of this stock is going to increase – but only by a tiny amount. In that case, they could purchase binary options and hope to double their investment even if the price of the stock increases only very slightly.
Binary options often cost about $50 to buy – a double or nothing bet on the price being over or under a certain amount in a short while. Binary options are therefore much higher risk than most other investments.
5. It Doesn't Matter Whether It's a Bear Market or a Bull Market
Binary options are a zero-sum game. For every dollar that someone makes trading binary options, someone else must lose a dollar. If the stock market is going up, investors as a whole can see the value of their investments increase. With binary options, this is not possible. Even if stocks are rapidly increasing, as much money is lost as is made trading binary options.
On another level, binary options may be the right choice if stock prices are falling. Therefore, binary options may be a much better choice in a bear market than in a bull market. The overall odds of making money trading binary options remains the same, whether stock prices are rising or falling.
6. Popularity Amongst Novice Traders
Binary options appeal to more and more novice traders – but is it worth the risk? One advantage of binary options for novice traders is that one can begin trading binary options with little investment. If a new trader buys shares of gold, they might have to purchase a minimum of as much as $10,000 worth of the stock. A new trader, even if reasonably wealthy, may not want to risk that much.
Binary options allow a new trader to try investing with only a small investment, often less than a few hundred dollars. The predictions that a person must make to succeed at binary options trading are also simple short term predictions. An average trader also only has to make predictions that are right about 55% of the time to make money trading binary options.
7. Skilled Traders Could Make a Fortune
Is trading binary options much more dependent on luck than other forms of trading? Professional traders often trade binary options; this surely would not be the case if binary options were random gambling. Inexperienced traders sometimes use binary options as a form of gambling. If an inexperienced trader is betting on the price of a commodity being slightly higher in sixty seconds, than they are relying on nothing but luck.
However, a more experienced trader making predictions about where prices will be in a day or two can make much better predictions than chance would allow. Most of the increasing interest in binary options comes from experienced traders that know a great deal about how to make short term predictions.
Conclusion: Binary Options Are Legitimate But High-Risk Stocks
Binary options trading is a legitimate, challenging, and risky as any other form of investing. On one level, it is not glorified gambling. On another level, it is not something that an average trader succeeds at. Only about one in four investors make money off of binary options.
If three-quarters of investors lose money at binary options trading, it might not be a good idea for beginners. Then again, one does not have to be a stock market rocket scientist to succeed at trading binary options.
If you believe that you could make money by predicting stock prices even though three-quarters of investors do not, you could very well be right. Make sure that you use a practice account before risking any real money on the market.
What Is the Bare Minimum One Should Know Before They Consider Trading?
If one is interested in trading binary options, they should first know the definitions of different terms used in this form of trading. If you do not know the meanings of words like "in/out", "on the money", or "no-touch," they should not consider trading. One must understand all of the different types of trades that one can make before they begin.
Secondly, one should always learn to trade with a demo account first. A demo account allows one to practice trading without risking any real money.
Thirdly, one should understand that longer expiry dates are better than shorter expiry dates. Longer-term predictions depend on skill, and short-term forecasts depend on luck. Much of the questionable reputation that binary options trading has comes from the randomness of options with concise expiry dates.,p>
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