Home > Ideas > Pros and Cons of Binary Options

Pros and Cons of Binary Options

trading platforms

Binary options are an emerging as a fan favorite among the online trading community, with the novel trading format gaining pace throughout the trading industry. Online brokers are fast picking up this format allowing their users to experience the new and exciting genre of online trading.

How Do They Work

Trading with binary options allows you to trade a wide variety of stocks, FX pairs and commodities with a new twist. Binary options allows traders to choose a product and predict whether it will increase or decrease in value within a given time frame, much like betting. The fundamentals are extremely simple, guess right you win, guess wrong you lose.

It gets interesting when you notice that the size of your loss or gain depends on how much your option fluctuates in price. If it’s a big rise you get a big win, small rise you see a small win etc.

Now that you know the basics, below we’ve listed out the fundamental pros and cons of this format to help provide some insight before you get stuck in.

Pros

Ease of use

When compared to a traditional trading format, binary options are really simple. Traders of any level are able to find it straightforward and profitable as it requires minimal complex decision making. This makes it a perfect choice for all online traders who don’t have the head for other trading styles. You simply select your variables and predict the direction against the value the broker offers, all of which can be done from a single dashboard.

Risk management

Managing your risk isn’t a pressing issue as the level of risk you choose to take can be managed and reined in. This form of trading allows you to apply a risk tolerance depending on the size of each position you take. If your prediction is off and everything goes wrong, you’ll be reimbursed with the rebate amount and will not lose the entirety of the money you risked.

Quick payoff

Compared to most other forms of trading, the return on your capital investment is very quick. Brokers will often offer a payoff on your trade which can sit as high as up to 70 per cent which you can often get your hands on within minutes.

Cons

High risks

Like with conventional trading, if you’re aiming to reap the rewards and turn a higher profit, you’re going to have to put your money on the riskier trades. Big payoffs come as a result of bigger risks. The brief timeframes that you operate in with Binary options also contribute to the high risks associated with the format, along with ramping up the pressure significantly. Market movements will be inconsistent and difficult to predict so you have to strike while the iron is hot.

Few trading tools

Binary options brokers will provide a number of tools and informative materials to aid your decision making. With the fast paced, high risk nature of this format, it’s relatively easy to get caught up in the moment. You may react instinctively without checking your KPI’s (key performance indicators) and end up in a sticky situation.

Binary Options Trading is an interesting and novel trading form that is fast becoming a favourite among online traders. You can give it a go for yourself on a number of online brokerage sites, and see what the fuss is all about.

 

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

Leave a Reply

Your email address will not be published. Required fields are marked *

*