If there are benefits of trading binary options, what are these benefits? Are there any real benefits or are these just some phantom stuff from the figment of someone’s imagination? There are real advantages to trading binary options over trading other financial markets, and we shall demonstrate some of them here.
Reduced Trading Risk
The inherent risk that is present in forex, margin stock trading and other financial markets is in the leverage factor. It is true that leverage can multiply profits, but for a majority of retail traders, leverage magnifies risk and this has been a major reason why many traders have lost so much money in these markets.
It is not just leverage that poses problems for retail traders. Factors like slippages, extreme volatility and the fact that losses are sometimes not limited to what is invested in a trade (especially when extreme market volatility induces extreme slippage conditions), all make trading in other financial markets very risky indeed.
But with binary options trading, many of these factors do not come into play. Firstly, the binary options market is unleveraged. Profits or losses are restricted to what the trader invests in a trade. There is a well defined payout system which is percentage based, therefore giving out profits equivalent to the percentage of the invested amount, and keeping losses limited to the invested amount, with the possibility of a return of some of the investment if the Loss Return function is used (where available). Slippage is not a factor, and market volatility has no bearing on what is made or what is lost in a trade. All these contribute to making binary options an investment vehicle with a reduced risk profile.
It is not all the time that conditions in a particular financial market are suitable for trading. There are occasions when in the forex market for instance, there will be limited opportunities for profit because of low trade volumes or lack of volatility, especially when a big announcement is awaited. But what constitutes a headache for a forex trader presents as an opportunity for a binary options trader. A binary options trader can use the low volatility situation to trade the IN range trade or a NO TOUCH trade.
Furthermore, a binary options trader may simply decide to trade another asset class on the binary options market, especially when there is a systemic collapse in the parent market. Imagine a situation where the stock market in a country is undergoing a bearish correction, reducing the value of equity holdings. The binary options trader may simply decide to trade another asset class in the binary options market, or take advantage of the market correction to short the corresponding index (if listed) on the binary options platform. Binary options therefore give traders greater choices when it comes to what to trade.
Lower Entry Point
One problem many retail traders have with commodities trading and other financial markets is that the cost of trading in these markets is very high. Brokers in the commodities market typically require tens of thousands of dollars to open a trading account. STP forex brokers typically require up to $50,000 as account opening capital, and traders pay spreads and commissions on trades. Margin requirements are also high, with the CFTC setting a margin requirement of 1:50 for forex accounts and 1:20 for options accounts. This means that many retail traders cannot afford to trade these financial markets.
With binary options, traders can actually commence trading with as little as $100, and the cost of setting up positions are sometimes as low as $10 on some platforms. When compared with the cost of trading on other financial markets, this is indeed a huge steal.
Greater Trade Control
Binary options allow traders more control over their trades. With the binary options platform, traders are shown how much they stand to gain or lose from a trade even before they enter a position. Traders can also delay expiry times or close out trades earlier. Risk to reward ratios in binary options are clearly set out; in forex, the onus of picking out trades that deliver good return ratios is solely the trader’s responsibility and many retail traders find this a difficult task. In addition, how does a forex trader control a loss that spirals out of control due to slippage, which makes stop losses largely ineffective?
These arguments are what provided a case for allowing retail traders access to binary options in 2008 when markets all over the world were collapsing like a pack of cards. Since then, binary options have come to stay and traders can use the various advantages to their benefit by participating in the binary options market.
Binary options were only reserved for the big banks from the early 70s up to 2008, when they used to be traded as Over-the-Counter (OTC) market instruments. With the collapse of the stock markets in 2008 as a result of the global financial crisis, there arose a need for alternative investments in which the average Joe on the street without much market knowledge could participate in without the excessive risk profile inherent in other markets. This led to the deregulation of the market in 2008 to allow retail trader participation in the market.
What are the 10 reasons why you should be trading binary options at this time?
1. Reduced Risk Profile
When compared to other markets like the spot forex market, binary options have a reduced risk profile. In the spot forex market and the stock market, traders have to factor in parameters such as leverage, margin and slippage as these can affect trading outcomes. These parameters have no bearings on trades performed in the binary options market, which means that all a trader has to contend with is the analysis of the trade. He does not need to worry about what price his trade entry is filled at, or whether there is enough margin in the account to support the trade.
2. Reduced Entry Costs
The cost of starting a binary options trading account is lower than what obtains in other financial markets. A trader can open a trading account with as low as $100 on some broker platforms. In the US, it costs as high as $25,000 to open a spot forex account and even more for an options trading account because of the steep margin requirements, effectively shutting out many retail brokers. But the reduced entry costs in the binary options market allow broader participation in the market.
3. Advance Knowledge of Profit/Loss Ratio
In the binary options market, the display of what profits will be made if the trade is successful before the trader executes the trade is an advantage to the trader. This helps traders know in advance whether a trade is worth taking or not and prevents traders from taking unnecessary risks. Such facilities do not exist in other markets and this makes it easier for retail traders to subject themselves to unnecessary risks.
4. Limited Loss Potential Per Trade
In the binary options market, any losses sustained are restricted to the amount that was invested into the trade. This reduces the loss potential per trade. This is unlike other markets where it is possible to lose much more than what was invested into the trade, especially when there is a highly volatile market condition that causes slippages to blow through stop loss settings.
The fact that there are several types of trades that can be used to trade assets in the binary options market means that traders have more flexibility and more scenarios to work with.
6. Increased profitability
Due to the short nature of the trade expiries allowable in the binary options market, it is possible for a trader with a good performance to record more profits over time than would be possible in other conventional markets.
7. Reduced Cost of Trading
The cost of trading binary options is less than in other markets. A trader who trades stocks or options would pay much more in commissions and spreads than a binary options trader.
8. Simplified Trade Entry Process
The trade entry process in the binary options market is much more simplified than what is obtainable in other markets. To open a trade in the spot forex market for instance, the trader has to calculate the trade volume, set stop loss and profit targets and also decide on what kind of order to use. This leaves beginners especially prone to making mistakes. In the binary options market, all a trader needs to do is to enter the investment amount, choose the expiry and execute the trade.
9. Enhanced Trader Education
Many binary options brokers offer an extensive educational suite that feature ebooks, video trainings, webinars and other resource materials that a trader can use to increase knowledge about the market. It is relatively rare to see such stuff in other markets.
10. Easy-to-Use Platforms
The web-based trading platforms obtainable in the binary options market make it easier to navigate and use for new traders. Many mistakes in the trade order process in forex and other markets can be attributed to the complicated nature of the trading platforms, many of which have interfaces that confuse new traders. This is not a problem in the binary options market.
With so many reasons that support binary options trading, traders who are having a tough ride in other markets should make the switch to the binary options market.