Investing and trading your money in binary options is considered by many to be a fiscally irresponsible move and many people around the world consider binary options to be a scam. These are well-propagated myths as binary options are a heavily regulated financial instrument and often have calculable risks along with clearly spelled out terms of engagement.
Binary options have exploded in popularity among investors of all ages. Their low entry load and minimum capital requirement are extremely beneficial and provide attractive prospects to any willing trader. It has now grown into a multibillion-dollar investment practice across the globe. Yet, many people are hesitant to put their money into binary options as their higher risk factors call for many people to dismiss them as bad trades with low returns.
In this article, we shall be attempting to delineate some common doubts and misconceptions that several people hold about binary options and trading with options in general. We shall also help you in recognizing if binary options are the correct trading instrument suited to your investment style or not.
Why Binary Options Can Be Bad?
As is common knowledge, trading in options is exponentially riskier than trading in normal commodities or stock, as values in options are often leveraged, which means that while your profits may be double, your risks are also increasing accordingly. This is true, but at the same time, many of these risks are easily mitigated by research and being self-aware of your knowledge and your capacity for investment.
There are options to trade without leverage, meaning you will never lose more money than you have invested. This is possible in trades that do not have that high of a promised return rate. Hence, now you know that there is stable, slower trading options for people who cannot digest extremely high amounts of risk. At the same time, a lot of people are comfortable with such risk, and only binary options and derivatives are able to provide people with consistently high returns.
It is very approachable and affordable to trade in binary options, as you can start from a minimum amount of $1 to as much as you like, meaning if you trade with low amounts of money in the first place, you stand to lose as less money too! This is a handy strategy to minimize losses for amateur traders who have begun to trade in larger volumes. On the other hand, some people invest and trade with large amounts of money, maximizing their profits while doing their research to minimize loss. Even then, they are bound to lose a certain amount of money.
Losing small amounts of money to learn is also a thing of the past, as most binary options brokers offer a demo account with virtual money to utilize and learn the methods of the market so that the risk remains at a low. Even veteran traders utilize the demo account option to try out new strategies and also to play around with certain kinds of order staggering. Many demo accounts are linked to the actual market, so you can replicate your strategies in real life at the same time or just after to avoid loss. This is an incredibly effective yet simple strategy to mitigate risk.
You must keep in mind these points before trading binary options or just trading in general:
Your platform should be top-notch with negligible server delay, as options often expire within seconds, and the risk of market-changing trends within seconds may cost you your asset. You must analyze the smoothness of the operation of your broker app or console and decide if you want to place your orders on it or not.
You must know how to study candlestick charts and how to pick up on bearish or bullish tells. You must know how to analyze trends in a large time frame as well as a very small time frame, up to an hour.
Holding positions open for a long time, for a maximum of a month, is expensive, whereas making the trade within the day is cheaper when it comes to brokerage fees, but the market is extremely volatile during a short time. Hence the risk management and returns offered must be weighed and studied before deciding what kind of trading you want to do.
Budgeting and Compartmentalization
Learning how to control your urge to make risky bets is a form of trader discipline. You must learn how to classify the assets in your account and trade with only a certain amount in order to minimize your losses in the event of incorrect predictions.
Checking for Regulatory Licenses
You must always ensure that the brokerage you are depositing money into is a legitimate service listed on the Investment Adviser Public Disclosure.
With so many provisions to reduce the risk of trading in place, binary options have emerged as a credible and viable investment opportunity and financial instrument. They are not risky if you have analyzed the market trends accurately.
Binary options fall under the Commodities and Trade Futures Commission (CFTC) in the USA and Cyprus Securities and Exchange Commission (CySEC) in the EU, among others, wherever the brokerages operate from and the banks they use.
Financial Conduct Authority (FCA) and the International Financial Market Relations Regulations Center (IFMRRC) are responsible, internationally, to pursue criminal action against people who offer fake options illegally or without licenses and people who scam people. Additionally, they also provide licenses to internationally oriented brokers.
They are responsible for ensuring the maintenance of a certain standard when it comes to pan-global trading and issue certificates of authenticity for brokers who uphold these standards, as they often employ surprise checks and spoof tests to strengthen the broker’s infrastructure when it comes to digital theft and even cyber-attacks. In the event of the hacking of a platform you are currently losing, you are bound to lose money if the said platform is not backed by any regulatory body and follows all laws of the countries it operates within to the dot.
Binary options are not only a legal instrument around the world; it is a preferred investment opportunity in many parts of the world where the value of a dollar is pretty high. Binary options are always under every scrutiny, just like any other derivative or future or even a basic equity stock.
You should always choose a trusted, legitimate brokerage app while trading in binary options. The allure of zero brokerage fee may not be true, as many false platforms have mushroomed with ill-intent. Most of the established brokers have high performance and very negligible fees. There are a few platforms that are legitimate and have also foregone their fees fully.
You should check the background of brokerages available on investor.gov for USA-based firms and also the National Futures Association’s search tool. Checking these would verify their credentials and also give you peace of mind as you can rest assured these brokerage firms will not defraud you of your money.
If your brokerage is not associated with any regulatory body or is based in certain tax havens of the world, you can be informed before you invest that these are suspicious brokers. It is your duty to find out the basic background information about any broker you are going to establish a financial relationship with. If, for some reason, your broker is blocked or banned in any country of the world, you have reason to believe that you may be involved in some malpractices meant to defraud clients of their money.
Is Binary Options Trading a Good Idea?
The concept of binary options is fairly simple to grasp. One could argue it is even more simple than a vanilla equity stock. You buy a contract at a certain price to predict the price of any commodity. Now, you must note that while you do not own the commodity, if you put up a certain asset against its price going up or down, if your prediction is true, you get back your asset plus a certain percentage of a return rate. If your prediction fails, you lose your money, and it is used to pay off those who predicted correctly. Since there are only two options to choose from, it is more simplified for people to grasp and hence difficult to make faulty investments due to the complexity of its jargon.
Many major binary options providers also have a simultaneous online education program, which may be paid or free, which provides comprehensive knowledge and education about binary options and the nuances involved in the trading of binary options. Enrolling in the said program may be beneficial to your overall trading career as they often cover the basics of trading in excruciating detail and also provide a few strategies to begin trading right away. These modules are designed for beginners and geared towards people who are new to trading.
This means that you do not hold any risk of holding the commodity, which could be oil, gold, silver, stock, or even crypto. Your only concern is the movement of the market, and hence these are short-term holdings and positions. Most positions stay open within the closing of the market and close before the bell. This, while reducing brokerage fees, also reduces risk from long-term volatility, as the market remains fairly constant within the day, with slight fluctuations that can be predicted.
There are many different types of orders you can place and intricacies of trading that take time to learn and master. While these are not essential to making some money in the short run, if you want to consistently churn out profits, you will eventually need to be aware of these stratagems, which may or may not include:
- Incorporating stop-loss into your orders.
- Inculcating trader discipline.
- Only indulging in the exotic options and the other complex options once comfortable enough with your own knowledge and understanding of the market.
If you are a veteran, you may be bolder with your trades and include a whole variety of different options. Even for beginners, it is advisable to diversify your options and to buy options on several different kinds of commodities. Some brokers offer basket trades for beginners, which include options of different commodities bunched under single purchases, reducing overall cost for broker and reducing the risk for the trader.
These complexities and versatility in options are what often scares amateurs into believing that trading in binary options is very exclusive and difficult. In contrast, the reality is somewhere in between, as it is very accessible and easy to begin with. Still, as you give it time and increase the amount of your investment every time, you will need to master some tricks and learn how to quickly and accurately analyze the movement of the market.
You can be assured that your money has not been picked up by a scammer if the platform you have chosen to make your trades on has a customer service helpline that is active and also manned. Many internet-based brokerages have a computerized brokerage when they cannot afford as many people, and this often leads to customer dissatisfaction along with a chance of people losing their money to technical glitches.
This is just one of many failsafe measures major brokerages have in place to ensure that their clients do not lose a cent of their money to any kind of technical glitches. Their credibility is on the line as a prospective customer may be lost if people lose money in suspicious circumstances and label the company as a scam, forever ditching the idea of trading in binary options.
Stable and quick withdrawal, without any hassles, is also a test of authenticity for a binary options trading platform. Having in place a minimum deposit and a minimum withdrawal amount which is the same and very low, near around less than $10, is a good sign to know whether your brokerage is legitimate or not. If your brokerage asks for more money before letting you withdraw money, it is a red flag and must be reported immediately, as you might be involved in a fraud.
If the withdrawal takes more than two days to be realized, it is definitely a sign of worry on your part. Slow withdrawals might mean clunky servers which may crash and take your money with it, or the money has been pocketed by some opportunists.
If a trading platform asks for your personal information, you must be careful while divulging it. They might ask for some bank documents for verification of your account details. Still, the brokers do not have the right to ask you for any credit information or any confidential details regarding withdrawal. If your platform refuses to provide services when denied permission to view sensitive information, you may very well report the platform as fraudulent.
Features such as stop-loss, ceiling trades, limit trades are excellent in teaching discipline to traders and also function as failsafe features in the event of predictions going wrong. These features, if available with a broker, are a sign of authenticity and legitimacy.
A large customer base is also one indicator of trust, but many trusted banks have failed in the past, so take the advice gained from this article with a grain of salt and always trust your own perception and judgment the most. This is the biggest failsafe measure you can take, and that is training your own brain with the utmost trading discipline.
Many brokerages are available only through a mobile app and some only through a PC-based web client. The best services to look for are the ones that are available in both of these mediums, as that ensures versatility of application on your behalf. In the event that one of those services fails, the other will act as a failsafe. Beware of applications only available on a single website, as these often turn out to be fraudulent with untraceable accounts in international crypto-based banks. Apps are safer than websites as they require authentication of licenses from the phone’s side.
If a broker is transparent with its trade volume and trading profits, one can rest assured it is a legitimate brokerage. These indicators can be learned by a person who wants to step into the arena of binary options and other derivatives with their hard-earned money and does not want to lose this dearly earned cash. Binary options are not a scam, and they are legit.
Over the years, after several scams and fraudulent activity which saturated the murky world of internet trading, binary options have gained a mainstream and legitimate following, which has led to heavy regulation in the field, which is definitely for the better. Statistically, there are fewer online financial scams being committed in the name of brokerages than ever before. That is because of a community of dedicated, honest, and knowledgeable traders who have all started their own honest little discount brokerage.
Binary options are as safe as investing in a stock or any other commodity you may invest in. The risks associated with the market are there, but inherently, they are no different than any derivative or future option you may find on the market with regular brokerages.