More and more people around the world are turning to binary options as a way to speculate in the financial markets. Whilst we do not recommend trading binary options for long-term investors, we look at 6 of the main things to consider if you are going to get involved in this increasingly popular trading option.
1. They offer an exciting way to trade for the short-term
One of the reasons that this form of speculation is so appealing is that it very fast-paced and exciting. Depending on the type of contracts that you invest in, you can realize profits (or losses) in as little as 60 seconds. More commonly the contracts are available with a 15 minute of 60 minute time-to-expiry, which is still a much shorter time horizon than most conventional forms of trading.
This makes trading of binary options much more akin to gambling rather than traditional investing for the long term.
2. You should limit your downside risk
Unlike conventional forex and stock market investing, this form of trading enables you to limit your downside risk. At the beginning of each trade you know exactly what you could win or lose, depending on the direction the underlying asset price takes.
There is no room for surprises and you will not find yourself in a position owing money to a broker in the event of some trades not going in your favor. This is important given the amount of variance in short-term trading and you should always make sure that you only risk any amount of money that you are willing to lose (as with any form of gambling).
3. You can trade across asset classes
Another appealing characteristic of this form of investing is that it enables you to speculate across a wide range of assets, typically across the following categories: commodities, currency pairs, stocks and indices. Because of this breadth of underlying asset offerings, traders are always able to take exposure to interesting and potentially profitable positions. Some brokers are offering hundreds of assets, and even those with a narrower selection typically offer more than fifty to choose from.
However, you should be careful with trading in assets which you have little or no experience. It can be tempting to speculate only highly variable markets in order to make a quick win, but this clearly carries a level of risk.
4. There are brokers to match all budgets and experience levels
As this form of financial market speculation has grown more popular, the number of brokers who are providing relevant services has continued to expand. As a result, investors of all experience levels and budgets can find a broker to match their needs. Some specialize in catering to beginners, others specialize in high-net worth investors, and others still focus on addressing customers with special needs, such as those seeking Islamic trading functionality.
As with all things in the world, as something becomes more popular, there will also be a number of sharks creeping out of the woodwork! Be careful:
5. You can pursue one of a number of strategies
This form of trading offers almost an unlimited range of investment strategies. Whether you are interested in pursuing technical, fundamental or hybrid market analysis techniques, this form of trading can accommodate your approach. Any beginners should educate themselves on these strategies before they get involved in binary options trading:
6. Make use of free educational resources
There are many free online resources for investors seeking to learn about this form of investor. You can access articles and, increasingly, online video tutorials that provide in-depth explanations of how to trade, how to manage risk, how to analyze the markets and many other topics.
As outlined above, there are a number of things that investors who are seeking to speculate in the financial markets should consider before trading binary options:
Related Article: Binary Options Trading (OneTwoTrade)
As the market for this form of investing continues to grow, expect to see a growing number of people choosing it as their preferred method for accessing the markets as a short-term option to speculate with your fun money! Just remember: binary options should never replace your investing, but it should rather be considered to replace your entertainment budget for the casino or the bookies if the markets are your favourite place to gamble.