Binary Options Trading
During the early days, Binary Options was a comparatively unregulated financial market that only catered to an elite group of investors. However, since 1971, the Chicago Board of Trade revolutionized the way binary options work by founding the Chicago Board Options Exchange, the world’s first and largest options trading platform. Slowly, binary options began to take prominence in the Euro zone and UK became a home to one of the largest binary options client base. The relative ease of rules and guidelines led to the growth and establishment of binary options in UK.
Binary options incorporate a wide variety of assets that include stocks, equities, indices, Forex, and Commodities. Over the years, the range of services provided by binary options markets evolved to include more assets, larger liquidity, and lower fees, which resulted in garnering a huge amount of interest within the general public. Binary options are more commonly associated with the currency markets, even though it includes a range of other options such as stocks, indices, and commodities.
At Binary Options Trading, our primary motive is to help traders bypass several pitfalls associated with investing in a risky and volatile market. There are several issues that a trader will face while dealing with binary options that include scam brokers, low-quality signals, lack of market knowledge, the psychological effect of trading, and more. Binary Options Trading is committed to enhancing your experience by offering a vast resource of online information that will help you to become an informed and successful trader.
Binary Options & The Financial Markets
Over the past few decades, the financial markets have seen numerous people making a fortune through price fluctuations while the market has also accomplished itself as one of the riskiest investment ventures of all time. There are two highly popular ways of trading the financial markets, by trading Binary Options, or through conventional trading such as stock trading and Forex trading. Both work on the same principle of making or losing money according to the price variation of an underlying asset, but the financial workings of the two types of investments are entirely different to one another.
Binary options trading rose to prominence by 2008 when major regulatory organizations started regulating binary options brokers due to the vast popularity of binary options. CySEC is considered to be at the forefront of revolutionizing binary options trading by being the first major regulatory agency to regulate modern day binary options brokers. Binary options are seen as one of the most attractive investment opportunities due to their open market attitude, as traders can calculate their risk and reward even before placing a trade.
Binary options trading does provide several undue advantages over traditional forms of investing such as Forex and equities, and some traders also find binary options to be much better in terms of excitement and profit factor. UK is one of the largest markets for binary options trading, and several binary options brokers in UK choose to base their operations in UK to cater to a global market.
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What Is The Fundamental Difference Between Binary Trading And Other Markets Such As Forex Trading?
Binary options work on the principle of betting on the movement of an underlying asset in any one direction. Binary option revolves around the binary system, which deals in 0s and 1s. Therefore, binary options can be considered as a platform that provides only two options for the trader; enter the market at a fixed price and expect the underlying asset to either go up or down.
To explain the fundamentals of the binary options in simple terms, let us consider the price of the most traded currency in the Forex market, the EUR/USD pair. Let us assume that the current price of the EUR/USD pair is 1.2500. A binary options trader is offered the chance to predict the movement of the currency (call or put) within a predetermined expiry time. The expiry period of options can vary from as low as 60 seconds to a day or a week, and is entirely dependent on the binary options broker. Once a trader chooses their direction, they will be required to bet an investment amount, which can range from $5 to $5,000, which is once again dependent on the broker.
After placing the bet, both the trader, as well as the broker, will wait for the expiry of the option, and the price at the expiry will be taken into consideration. If the price of the EUR/USD closes at 1.2501 or above, and the trader has bet on an upward movement, the trader wins a percentage return on his capital plus the investment amount. This should naturally be anywhere between 40% and 90%, but if the price of the currency pair drops to 1.2499 or below, the trader loses all of his investment. In some cases, a broker offers a maximum of 20% cash back on losing trades, but it is a rarity among brokers. If there is no change in the price, the broker returns the money back to the trader.
Is Binary Option Trading Riskier Than Forex Trading?
The currency market in its entirety is a risky business model for those who wish to invest their hard-earned money. Binary options trading has its set of advantages and disadvantages while Forex trading offers more control to the trader over their capital. Binary options trading ensure that the trader loses only a set amount of capital on each trade, which can help in minimizing risk. On the other hand, the losing potential for Forex trading is huge, as a trader can lose his entire money without a sound money management plan.
However, Binary options restrict the freedom to a trader, as it is impossible to get out of a trade if it goes the wrong way. Brokers do offer the option of extending the period of expiry, but will often ask you to increase your investment, which can work against you in losing trades. In Forex trading, the trader has the freedom to bail out of losing trades without making further losses, which reduces the risk for a seasoned and disciplined trader.
Therefore, both forms of trading have their distinctive risks and advantages, but a trader cannot consider one to be riskier than the other. Binary options can be considered as a more risk-averse solution to Forex trading for those who can predict the movement of the market, but are unable to accurately analyze the extent of the movement. In such a scenario, binary options allow the trader to have a predetermined idea of the potential gains and losses before entering a trade.
Is Trading Binary Options Legal?
Yes, binary options are completely legal, and regulatory agencies such as the FCA, CySEC, and other organizations regulate binary options brokers to ensure that consumers’ funds are protected against financial fraud or consumer abuse. Some Forex traders may compare binary options to roulette or gambling in general due to the “all or nothing” nature of the investment, but binary options are suitable for those who like to invest in a relatively simple investment system without performing an extensive market analysis. Binary trading in UK has grown by leaps and bounds due to the incredible popularity of the market among traders from the region, and the presence of a regulatory organization such as the FCA has made it easier for traders to invest in a reliable UK binary options broker.
In several markets such as the US, binary options trading are still in the primitive stages. The CFTC and NFA are slowly warming up to the idea of regulating binary options brokers. They have regulated only a handful of brokers, who can offer binary options to investors in the US, but the market is heavily regulated, and there are several restrictions to trading.
How Do I Trade Binary Options Freely?
Although binary options are heavily regulated in countries such as the US, traders can enjoy more flexibility by depositing money into regulated brokers from Europe, Asia, and Australia. Binary options brokers in UK are considered to be the best in the industry due to their affiliation with the FCA and the significant amount of volume they deal with on a daily basis.
However, the only downfall is that traders using such brokers will not receive any support from their home country during disputes or if the broker siphons money away from consumers. But that shouldn’t spell disaster for potential investors, as most modern brokers regulated by agencies such as the FCA, ASIC and CySEC are thoroughly committed to upholding consumer interests.
What Are The Different Binary Options Broker Choices Available To A Trader?
A trader can choose from a wide variety of binary options brokers that are regulated by different regulatory agencies from around the world. Since binary options include the uncertainty of an outcome, profits and withdrawals should be a seamless process. Most regulatory agencies such as the FCA and CySEC put forward several regulatory guidelines to ensure that all brokers adhere to a strict framework of operations that manages to safeguard the interest of clients.
As a trader, your primary objective must be to choose a broker that is properly regulated by a recognized regulatory agency. It would also be a good idea to choose a broker that has a good reputation in the market, and new brokers should be carefully analyzed before depositing money with them. At Binary Options Trading, we constantly review leading binary options brokers in UK as well as around the world to ensure that the traders get unbiased opinions about performance and reliability of financial companies offering services in the industry.
What Is The Impact Of Binary Options Signals On Profitability?
Trading signals are crucial for traders who don’t have the requisite knowledge to become a profitable trader. It is essential for traders to have an immense market knowledge and excellent research capability to accurately predict the outcome of the markets. Signals can act as a double-edged sword, as it can not only provide assistance to a trader, it can also lead to his downfall.
There are several different signals providers in the market that offer an excellent portfolio of services to ensure that traders receive the best market analysis. However, there are also several signals providers whose main motive is to trick users into paying for low-quality services that will ultimately wipe out the entire investment capital. Therefore, it is essential for all traders to properly evaluate a binary options signals provider before paying for their services.
Signals providers can make the job of understanding the markets easier, but it also comes with several inherent risks. Traders only need to invest a small amount of time on researching the markets; however, it will not provide the sufficient market knowledge required for long-term profitability through effective risk management.
Getting daily signals from a third party service provider also does not guarantee profits in the long run, as several aspects of trading can play a major role in deciding the profitability of a trader. Trading signals providers cannot predict the markets with 100% accuracy all the time and most high-quality signals providers can only achieve 55-60% accuracy on an average, irrespective of what they claim with their performance reports. That number is way too low for an average trader, whose trading psychology can lead to more losses than gains. A trader should be prepared both technically as well as psychologically to deal with long periods of drawdowns that most signals providers face from time to time.
What Are The Advantages & Disadvantages Of Trading Binary Options?
There are several distinctive advantages and disadvantages of trading binary options, and at Binary Options Trading, we will make an attempt to cover the most comprehensive pros and cons that will affect most traders in the market. While these are not the only factors that affect the outcome of an average binary options trader, these pros and cons are mostly in line with what traders have experienced over the past few years.
Advantages:
Fixed High-Return Yields From A Small Capital
Traders have the ability to enjoy a maximum of 90% return per trade, which is certainly one of the most high-yielding investments of all time. 90% return is akin to almost doubling your investment over a short period, which is a strict impossibility in any other business model. Profit margins usually vary between 40% and 90%, but traders can expect to make well over 75% on all successful trades using binary options. The interesting fact is that traders can invest as low as $5 in the market without risking a great deal of capital, which is another great aspect of binary options trading.
Fixed Profit & Loss Per Trade
Immaterial of the outcome, a binary options trader can always set a predetermined amount of profit and loss before entering a trade. For example, a winning trade can provide an average of 75% loss while a losing trade will wipe out the invested amount completely. Therefore, every trade has a fixed outcome, which can be carefully selected by the trader before entering the market. While the fixed outcome can act as a hindrance for a select group of people, it should help most traders as they can choose their risk to reward ratio well in advance and avoid risking it all in the market.
Trades Are Over Within A Short Span Of Time
Most forms of trading in the financial markets involves spending countless hours in front of a trading terminal for market research, analysis, and tracking open trades. Some trades can run for a long period, including weeks or months. Therefore, the potential profits are distributed across a lengthy duration of time, which can affect the patience of even an accomplished trader.
Binary options trades, on the other hand, are over within seconds, minutes, or hours at the most. A trader has the option of choosing their desired timeframe, and the return is directly dependent on the timeframe chosen. A Trader can invest in binary options at any time of the day, and the ease of modern day trading apps allow traders to trade binary options from virtually anywhere in the world. This is another reason why binary options are highly popular among traders who lack the time and resources to spend a major share of their time in front of a dedicated trading terminal.
Traders Don’t Need A Huge Amount Of Market Knowledge
When compared to traditional forms of investing, a binary options trader can become profitable by making educated guesses most of the time. Successful binary trading is all about making the right calls consistently without experiencing large drawdowns. This can be accomplished by subscribing to a reliable and genuine binary options signals provider for timely market advice and signals.
Most binary option trading brokers in UK also provide free signals to their clients, which can be used to the perfect advantage of the trader. This helps in mitigating risks and should help to reduce the number of losses without spending a lot of time on market research. Although risks are part of the game, a trader can avoid making mistakes on his own by getting professional advice.
Access To An Impressive Array Of Financial Instruments
Binary options bring together a wide array of financial instruments that range from currencies and commodities to stocks and indices. Conventional financial brokers are restricted in their services when it comes to including all major financial instruments, as there are only a handful of brokers who offer all instruments under a single roof. On the contrary, binary options brokers offer a wide range of assets to provide better freedom to the trader to pick the instrument that they desire.
Access to a wide variety of instruments also gives more options to the trader to get exposure to popular assets that are traded across the globe. This also enables the trader to experience the thrills of having hands-on experience in dealing with markets worldwide.
Profitable For The Disciplined Trader
A disciplined trader who can strike the perfect balance between risk and reward can achieve immense success by trading binary options. To trade binary options, one should be able to control their emotions and read the market according to its merit. Therefore, binary option trading has proven to be successful for disciplined traders whose sole aim was to make consistent returns using the best tools available.
Trading Is Exciting
The fast pace of binary options is exciting and rewarding both monetarily as well as emotionally. The short duration of trades contribute to the excitement factor and is one of the reasons why most modern traders prefer binary options to other traditional forms of investing. The high-yield potential of binary options also makes it exciting for traders as they can witness their account growing to substantial amounts within a short period. The primary focus of every trader is to make money fast, which is what the core concept of binary options stands for.
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Disadvantages:
No Freedom Over Trades Once Entered
It is a fact that most binary options brokers don’t offer the option of bailing out of trades once entered. This is in direct contradiction to traditional forms of investing, where the trader has the freedom to customize a trade according to their requirements. In Binary options, a trader will have to wait for the expiry of the option, irrespective of the outcome. Therefore, if a trader believes that he is going to lose a trade, he does not have any other alternative rather than to accept the loss and move on. Some brokers do offer a 20% cash-back on losing trades, but most brokers prefer to keep the entire amount to themselves.
However, a trader can extend the expiry period of the trade by adding on to the trade, but this will lead to cumulative losses if the market doesn’t favor the trader’s perspective. Therefore, if a trader is not disciplined in his approach, he stands to lose more than he gains.
Limited Profit Potential Than Stock Or Forex Trading Over Long Term
There is a cap on the maximum amount that can be invested per trade, which is in direct contradiction to conventional forms of trading. In binary options, a majority of brokers limit the amount per trade to $5000. Therefore, even if binary options are considered to be a high-yield investment, the gains are limited to a percentage of the initial trade amount, unlike other forms of trading, where the percentage of returns is directly related to the investment capital. Therefore, the long-term profitability is certainly lower for binary options when compared to Forex or equity trading.
Traders can only expect to make a steady stream of income through binary trading, and should not expect to build capital to the tune of millions. However, the volatility and high-risk nature of binary trading may also affect the overall success of a trader in the markets.
Considered As A Gambling Alternative
Irrespective of the consensus and the regulation of binary options brokers by financial regulatory agencies, many traders and institutional investors still consider binary options to be a form of gambling. Broker advertisements that claim huge returns over a few seconds also don’t help binary options to establish itself as a genuine financial market, as modern day traders are very cautious about scams, abuse, and financial fraud.
Binary options also work like a roulette table, as the trader is betting on either green or red (up or down). However, there is a bit more research involved in binary options, unlike gambling, which is dependent entirely on luck. Of course, successful gamblers always use statistics to even the odds in their favor, but binary options allow a trader to accurately predict the movement of a market through extensive market research and analysis.
Finding A Reliable And Regulated Broker Is Difficult
It is still early days for binary options when it comes to reliability of brokers, as several traders have had negative experiences with brokers. Regulation is playing a major role in ensuring that all regulated brokers adhere to a strict code of conduct to maintain the integrity of the markets, but traders are still wary of fraudulent brokers who are known to indulge in malicious activities. It would be safe to assume that a majority of binary options brokers in the UK are reliable and trustworthy when compared to competing brokers from around the world.
The Future For Binary Options
Binary Options still have a long way to go to acquire the market share that other financial markets enjoy. However, the popularity of binary options is certainly indicative of a positive trend that has traders interested in a non-conventional form of investing that not only promises excellent returns, but also offers an undue excitement over traditional trading strategies. Together with good regulatory guidelines, binary options have immense potential to become a large industry within a few years’ time.
Modern day investors are not patient in their financial goals and expect remarkable gains over a short period. This is especially true for the younger generation of traders who use modern trading concepts such as social media trading to take their trading to the next level. Most brokers are also creating new avenues to implement the modern concepts of trading into traditional platforms to ensure that they cater to the exact requirements of the new generation of traders. Binary options fit the bill perfectly, and are one of the most exciting new opportunities that the market has experienced in recent times.
