If you know a thing or do about the economy, and if you are interested in potentially earning a bit of money by putting this knowledge to use, then binary options trading might be of interest.
Essentially, this involves trading price fluctuations in various markets around the world. Though binary options trading is very straight-forward and a trader can invest as little as $5, it is nonetheless important to be familiar with the process of binary trading before delving into its world. There are specific fees and risks associated with binary options trading that you should understand before determining whether this is something for you.
The following guide aims to give you a simple introduction as to what binary options trading entails.
What are binary options?
A binary option is – put simply – a proposition. For example, as a trader you may be asked by a broker whether the price of gold will go above a specific figure at a specific time. If you believe that this particular asset will indeed increase in value by the specified time, then you can buy the binary option for a sum between $1 and $100. The higher the cost of this binary option, the more likely it is that the assets’ worth will increase (as evidenced by the traders prepared to bid bigger sums for the binary option). Should the price rise as predicted, the binary option becomes worth $100 which is what you will receive in pay-out. If you paid $80 for the binary option, you’d therefore have made a profit of $20. Not a big sum, but easy money for little risk.
A binary option costing only $10, meanwhile, suggests the market value of the given asset is unlikely to rise beyond the specified amount. As a trader, you can either choose to sell the binary option (thereby earning at least $10) or buy it (thereby risking a small amount of money for a large but unlikely profit).
Of course, you can trade in a number of different assets – not just gold. Common binary trading assets include stocks, currencies and commodities.
Is binary option trading a form of investment or gambling?
That’s a hot topic, and the subject of a lot of debate in countries whether the legal status of binary trading is unclear. In the US, binary options trading is not considered online gambling and is therefore legal. Those who consider binary trading to be a true form of investment point to the fact that, in order to become a successful trader, it is necessary to utilize economic knowledge and market research. Others, however, are critical of the way in which certain brokers might take advantage of less experienced traders with deceiving propositions. For example, all indicators could point to an asset rising in price, except that the brokers happen to have industry intel that suggests this is consensus is misguided. In this scenario, a broker could theoretically fool traders in spending a larger sum of money on a proposition that looks likely but is bound to flump.
However, providing you trade at a legitimate and verified online broker (you can find these at a binary options review site like www.binaly.com) then binary trading is invariably a safe, relatively low-risk and potentially easy means of making a small side income.
What are the main pros and cons of binary trading?
One of binary option trading’s biggest appeals is that the risk and reward of any investment is known from the very beginning. This helps traders make informed bets, and means that they can only ever lose as much as they put in. Though brokers may vary, the fees are typically non-existent or reasonable. There are no liquidity concerns as the trader never officially owns the asset. Furthermore, binary options are extremely simple to trade in. There are only two options to any proposition – will the price of an asset increase or decrease by this set time? Also – a trader can trade in any market anywhere in the world, which provides a further appeal for those interested in investing.
However, there are of course downsides to binary options. In the overwhelming majority of cases, the reward is considerably lower than the risk. In order to cover losses, a trader must be correct most of the time. It may take a long while before beginners become very good at predicting market fluctuations and placing wise bets. Even then – there’s no guarantee that one will ever become exceptionally good at binary options trading, making it risky for anyone other than those who have a strong comprehension of the economy. Finally, some trading markets are unregulated outside the US. As a trader, you must be careful in choosing a legitimate broker so that you do not fall victim to scams or shady brokers.
Binary option trading remains a hugely popular alternative to more traditional forms of investment in the US and other countries. Regardless, binary trading is not for everyone – and those who are able to regularly make a profit from the industry need to be weary of frequent law changes and circulating scams to which binary trading is unfortunately vulnerable. If you think you’ve got what it takes to become a successful binary trader, then we suggest reading online reviews on the best broker sites for the particular market in which you are interested.