With traditional types of investing options, the investor has to purchase and own the asset or assets and has to continuously monitor the price movement of those assets he or she has bought. The investor will then sell the asset back. If the investor sells the asset back during a time when the price of the asset is down, the investor will lose the invested money. But if the investor sells the asset back at a right time, which is when the price of the asset has improved from the original purchasing price of the investor, then the investor will be able to make money from the investment. This form of investment means that the investor has to continually be concerned about the movement or the rise and drop of the price of the bought and owned assets so that he or she will discern when to sell the assets back.
On the other hand, binary options trading is a form of options trading where the investor is not required to continuously monitor and anticipate the movement of the asset’s price because all the investor has to do is to forecast if the binary option is going to rise in price or going to drop in its price. Mainly, binary options trading is much simpler than the other types of trading options.
The Simplicity of Binary Options Trading
Since there only two possible results provided by trading binary options, there are only two selections or predictions an investor can make: put and call.
If the investor selects the “put” choice, it means that he or she is forecasting a drop in the price of the asset or binary option. But if the investor chooses the “call” selection, it means that he or she is forecasting a rise in the price of the underlying asset or binary option.
The first thing to do in trading binary options is to choose an underlying asset or binary option to predict. It is suggested by many experts that you have to choose an asset or binary option that you are more familiar with. The purpose for selecting a binary option that you are more familiar with is that it will help you during the process of forecasting if the price of the binary option will rise or drop after a certain period of time.
The next step in trading binary options is choosing from two possible outcomes: is the price of the asset going to rise or is the price going to drop? To forecast the outcome properly, comprehensive research, evaluation, and examination has to be completed by the investor. There are many tools and features given by various binary options sites that will aid you and guide you in making informed decisions when it comes to forecasting the movement of the binary option’s price.
The Assets to be Used in Binary Options Trading
The underlying assets that can be traded as binary options are assets such as commodities like gold, oil, silver; indices; forex or major currencies such as US Dollars and Euro, and stocks.
Advantages of Binary Options Trading
One of the advantages of trading binary options is that there are only two possible results: either you will win a fixed and known amount of money because the price of the asset goes up after a specific time period, or you will lose a fixed and known amount of money because the price of the asset went down after a specific time period. This takes away the worrying and concern of other investors who continuously monitor and evaluate the movement of the price of the asset or option they have bought. Both the amount of the potential reward and the amount of the potential risk is also known by the investor before acquiring the binary options contract. It will not matter how large or how little the increase or decrease of the asset’s price will be because the reward and the risk have already been set ahead of time.
Another advantage of binary options trading is that it is much simpler and convenient to do if you compare it to the traditional options investing. In traditional options investment, the investor has to always monitor and observe the right time to sell the asset or option back because if he or she sells the asset back when its price has dropped from the original price of purchase, then the investor will lose the investment money. In binary options trading, the investor only needs to forecast if the binary option chosen will rise in price or drop in price after a specified time period.
Another advantage of binary options trading is that the trader is usually not required to pay for any fee or commission. In traditional trading, the investors usually have to pay fees and pay commission to their brokers. Liquidity is also an issue for traditional options investors because they actually have to purchase the asset for a price. Liquidity is not an issue for binary options investors because they never actually buy the asset, they are just predicting if it going to increase or drop in its price. This is also the reason why brokers can set different time periods or frames for binary options trading. The timeframes set by the broker could last for seconds or months depending on the broker’s decision. This feature is very attractive to many investors because there are more options on when you want to gain some money.
Disadvantages of Binary Options Trading
One of the disadvantages of trading binary options is that the potential risk is always bigger than the potential reward. Because the potential risk is always bigger than the potential reward, the binary options investors must be right with their predictions most of the time in order not to suffer losses or minimize their losses. This can be difficult especially for beginners.
Another disadvantage of trading binary options is that many binary options markets are not as well regulated and well monitored compared to the traditional options trading markets. There is a very rare occurrence of binary options investors being scammed by some brokers.
There are many pros and a few cons in trading binary options. It is simpler than traditional trading but it also takes a lot of hard work and research to be successful. Many investors lose money in binary options trading because of the lack of focus and study. Always remember to research the assets thoroughly so that you will be able to successfully predict the outcome of the binary option.