Many investors are entering into the binary options market because it has proven to be a remarkable way to grow capital. The success of binary options trading has seen several brokers go online, giving the non-traditional private investors an opportunity to trade from the comforts of their homes. In financial terms, binary options can be described as a trading whereby the payoff boils down to either a gain in fixed asset or a no gain. Instructively, the notion of “gain or no gain” return in binary options trade is actually entirely dependent on the actual trading platform, where nothing may in reality mean getting a share of the benefits or accrued profits.
The two terms widely used interchangeably to mean binary options are Fixed Return Options (FRO) and Digital Options (DO). The binary options pricing is generally determined by the probability of an anticipated event taking place. When trading binary options; traders need to predict the direction of price movement on assigned asset. The binary options buyers usually do so in the belief that market prices will move-up, or a specific economic event will take place. On the other hand, a sell-off can also be executed when the opposite happens, in case the anticipated outcomes are not realized. If the your market determination is right; you receive a payoff as stipulated in the settlement contract on the expiry date.
The advantages of binary options trading, over the traditional options trading are numerous. Whereas the traditional options trading does not have defined boundaries of reward and risk; giving rise to an ostensibly limitless levels of gains or losses. In addition, the traditional options’ trading requires the dealer to have both a sense of price direction and magnitude of movement. Some of the outstanding benefits and advantages offered by binary options trading include:
- The rewards and strikes are known beforehand
- It has a systematically controlled risk to reward ratio
- It encourages simple trades
- Usually, the higher the risk factor, the greater the payoff rewards.
- Offers no commissions on trades
- Offers both short-term contract durations and multiple daily-closing settlements
- Offers innumerable strike-prices and expiry dates
- Comes with a variety of customizable investment portfolios and benchmarks
- Trading does not require one to possess; the stock market trading knowledge
One of the most pertinent trading ideas, when dealing with binary options, is to understand the interchangeable relationship between risks and rewards. The fact that the options’ trading offers numerous closing markets to traders; offers dealers a choice of several investment opportunities and trading flexibility. An astute investor will at all times acknowledge and weigh the contract directions before taking a position. Binary options trading also offers an alternative avenue to hedging or speculating, with a presumption of either gaining or losing. Some of the glaring deficiencies in binary options trading include:
- Binary options trading has very little oversight
- One can trade with no asset ownership, which increases the risk factor
- The winning payouts that are typically, less than the loss amount on the losing trade