What You Should Know About Binary Options

Many people consider binary options, and other types of derivatives, to be just another form of gambling, and we, along with many financial experts disagree. Always know that when you trade real assets like, indices, currencies, commodities, and stocks, you have access to a wealth of knowledge about them, and it drastically changes your chances for success. If you treated options trading like gambling, you would be missing the entire point of binary options, and the purpose they have in the world financial market.

If the price of gold dropped to $1 an ounce today, do you think that the price will remain at $1 an ounce tomorrow? Because the market is comprised of buyers and sellers, it’s possible, even though unlikely, for sellers in the market to drive the price down to $1 an ounce through one day of trading. It doesn’t take a very smart person to know that the value of gold is worth more than $1 an ounce, and therefore obvious to believe that future activity from buyers will move the price of gold back up. Binary options give investors an opportunity to earn money off of market corrections, and other forms of big price swings.

There are many strategies available for trading derivatives, and are offered by brokerages and hedge fund companies worldwide. However, there will never be a real strategy for casino gambling.

Profits

There’s not a big difference between losing money and making money when trading binary options. When you really don’t know what you’re doing, you’re chances of breaking even are fairly good. However, when you take the time to learn more about options trading and the market, your chances of making money go up substantially.

Hedging

Different methods of hedging can be applied to almost every form of investment trading available. The concept behind hedging is to invest in both extremely low-risk investments and investments that have a little more risk. The profits from your low-risk investments offset your losses for your more risky ones. There are hedging strategies that work amazingly well for options trading and traders see high levels success applying.

Assets & Asset Classes

Binary options offer a world of assets from different asset classes to choose from. One kind of asset behaves differently than another. An expert trader is normally someone who specializes in one type of asset class, and spends an ample amount of time researching that class well. As a trader, it’s not necessary for you to trade many asset classes in order to trade successfully. On the contrary, it’s better to focus on one asset class, or a group of assets, particularly ones that grab your attention.

Let’s say that you have an interest in technology companies. A good place to start would be tech stocks. When you have an interest in a group of assets that represent something you like, it’s easier to invest time reading articles, watching economic news, and performing other forms of research regarding those assets.

Profits from Small Movements

One of the biggest advantages to binary options trading is the fact that it doesn’t take an asset to move in price by huge percentage points for you to win big. The amount of profit you will make whether the price closes higher or lower is the same even if the price moves by a single tick. Your job is to predict if the price will close higher or lower, and if you’re correct, you win.

In other forms of trading, if your asset gains small percentage points little to no profit is left, after fees and commissions are paid to the broker. A good trader invests in all available investment types to build up a strong portfolio. Assets yield profits in many different periods. As a trader, it’s important to know what assets are available and the profit and loss associated to them.

The Bottom Line

For many, binary options are the perfect method for trading assets, and are considered more of an active investment. For others, a passive investment that’s long-term with a smaller percentage gain is more ideal. Investing in a 5 year bond with a maturity of 4-5%, allows someone to have a good return on investment without putting the time and  effort into market analysis and research that you would see from an active trader on investments a with shorter term gains. Keep in mind; both methods have a proven track record. The best way to see if options trading will comfortably fit in your regular trading practices is to invest some time learning about them, and to try a few small trades.