Binary trading is exactly what the name suggests-all or nothing. The pay in this financial option is either a fixed monetary amount or basically nothing at all. There are two main types of binary trading: cash-or-nothing option or the asset-or-nothing option. The latter pays the security value while the former pays a fixed amount of cash.
In binary trading, the trades are placed based on whether the answer to a question is yes or no. The question can be, for example, if an underlying asset will be above a certain price at a certain time. The risk and reward are known in advance. While the questions are generally simple, one needs to have a complete understanding of how binary options operate, the markets and time frames that can be traded with binary options, the advantages and disadvantages of these options and the companies which are legally authorized to operate in this field.
Binary trading has a variety of benefits. Firstly, it is simple. The steps are relatively basic and easy. All you need to do is identify a broker who can help you trade, and make a deposit. The process itself is not difficult. You only have to make a prediction on whether the price will go up or down, and then decide the amount that you want to invest. Since the determination is only based on one factor, your bet is pretty straight forward. The time for when the trade is managed by the expiry time, so you also don’t need to worry about that. Another advantage of binary trading is that you can start off with low investments and can continue with them until you get the hang of how the entire system functions.
Another benefit of binary trading is that you are in control. The risk is fixed, so you are aware of what you may lose or gain from the start. Therefore, you have better control over how you decide to invest. The profit return is also quick and has high potential. You can get a return of up to 90% on some trades, and that too in a short time span.
Binary trading is also not compelled to a specific market. You can technically trade across all markets through binary trading since it is virtual. It is also accessible throughout the globe. This means that you can trade at any time of the 24-hour clock, and still manage to find a group of traders to earn profits.
However, binary trading comes with a fair share of drawbacks.
Regulation is a big problem when it comes to binary trading. Many ‘brokers’ have been exposed as being involved in frauds. In such cases, there is no real broker on the other end; the customer is betting against the broker, who is disguised as a bucket shop. Price data is also manipulated in order to cause customers to lose money. Such fraudulent operations may even stall withdrawals. If a client, for instance, is expecting payment and has good reason to do so, the operator will simply stop taking their phone calls. The biggest drawback of binary trading is that they are generally unregulated, trading on the Internet, and hence, prone to fraud.
Another drawback is while this form of trading can give you big profits, the converse is also true. The probability of suffering huge loss is also present. Your odds are also generally tilted in favour of you losing trades. As mentioned in this article, approximately for every 70% profit, the corresponding loss of the same trade would result in an 85% loss. This means you need a win percentage of at least 55% to break-even.
Conclusively, the question that remains on one’s mind is: “is it worth the risk?” The answer in my opinion is yes. Ultimately binary options are deceptively simple to understand. The most commonly traded instrument is a high-low or fixed-return option that provides access to stocks, indices, commodities, and foreign exchange. The expiration date, time, and strike price of these options are mentioned clearly. You are already aware of the risk and reward. There are generally no commissions or fees, with only two consequences; win a certain amount or lose it. They’re simple to use with only one decision to make: Is the underlying asset going up or down? Liquidity concerns are also non-existent as you do not own the asset, and countless prices and expiration times can be offered by the brokers. This is why binary trading has huge potential and is a good option for low-skilled traders.