In this article we will talk about binary options, i.e. binary options trading, or rather, its advantages and disadvantages in comparison to the classical foreign exchange trading (Forex). Trading binary options is very popular today and there are 3 good reasons for that:
1. An opportunity to make quick money with trading.
2. Good trading conditions (offered by most binary options brokers).
3. High percentage of profits (up to 95% from one trade).
However, there are important differences between normal trading on Forex and trading through binary options. Also, many traders are losing their first deposits either due to their small trading experience or greed and create myths about scam binary options brokers or something like that. In this article we will talk about it as well.
First, let’s discuss the advantages of binary options trading:
• High profits with a single trade, which can reach 95%.
• Various types of options (one-touch options, ladder, Turbo options (30, 60 seconds, 2 or 5 minutes), and others.), which involves a variety of trading strategies.
• Quick profits – a trader can make a profit within 30-60 seconds after placing a trade.
• You can not lose the entire deposit. Except when a trader invests all his available funds in a single trade. But this is a big mistake to do. Placing a trade, you risk only the amount you invest. If your option wins, you get your profit and the invested amount. In case of a loss, you loose only your invested amount of that trade. The rest of the deposit is not involved.
The disadvantages of binary options trading include the following points:
• If you want to open a demo account most binary options brokers will require making a minimum deposit of $200-$250.
• The ability to quickly lose the entire deposit if you trade short term options without any proper money management. This is not a serious disadvantage because you can also loose an entire deposit in Forex simply by forgetting to set up a stop loss. Usually traders won’t risk their entire deposit or having loosing trades one by one until their deposit is gone. In other words, binary options traders should understand that trading with short-term options require some careful approach and a good money management.
• Negative mathematical expectation, which is compensated by a profitable trading strategy. This point is very important, so let’s discuss it further.
When placing an option trade, you risk 100% of your investment, for example it is $100. In case if the option is profitable (your option wins), you get a profit of an average of 70% to 95%. So, your risk (loss) is 100%, and the profit is about 80% (may vary).
At first glance, this negative expectation should cause traders sooner or later to lose their deposit. In practice, we know that there are traders who trade binary options for years, and always stay in profit. What is the secret? The thing is that these traders use profitable binary options trading strategies by changing the negative mathematical expectation to positive as well as adapting to the changing market.
Remember that any profitable trading strategy is based on one or more market’s patterns, which makes it possible to make profits when trading binary options.
For example, the price is likely to be moving between the upper and lower levels of the channel until it receives a sufficient push to exit the channel. Another example is regarding the gap between quotations that usually takes place on Monday at the opening of the market. In this case the price has a probability of about 70% to return to its original price level within the next few hours. These situations based on the statistic data allow us to use binary options to make quick money with low risks.
If we look at the currency trading with Forex, we often also have a negative mathematical expectation, because the value of a take profit order, for example, is not always 100% compared to the possible losses. Let’s say a trader has opened a trade with a volume of 1 lot, setting up a stop loss and take profit. In this case a take profit will be 20 points ($ 20), and the stop loss is 30 points ($ 30). Although the classic version of take profit and stop loss orders set up ratio must be 3:1 or 2:1, but, in scalping, for example, traders often do the opposite.
You should understand that only if you are using profitable trading strategies and proper money management you can make profits in financial markets trading in a long run.
Before you join a binary options broker, make sure that you check its trading conditions, bonuses and other benefits of reliable binary options brokers: OptionBit, AnyOption, StockPair. Profitable trading with binary options is very possible if you follow the conditions described above.
I wish you profitable trading and remember that results of your trading are highly dependent on your chosen broker!
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