How safe is it to trade binary options?

Jessica N. Abraham
Image by mohamed Hassan from Pixabay

Before you begin trading, you need to understand what binary options are, which factors will prevent you from going too far, and which strategies will provide you with the greatest rewards.

Binary options are basically predictions placed on a trade that will allow you to bet on whether, or not, the price of a said asset will go up by a certain date and time. In some cases, you can sell your options if and when you change your mind, in order to limit your losses.

The price of each option will always be a fixed price between $0 and $100, and one reason investors prefer this type. In most cases, you will also pay a fee, or commission, to your broker. So, always pay attention to the bottom line.

If your predictions are correct, you’re not only profiting from the win. Your risk is also returned. If your predictions are off, however, your loss is settled with your initial investment and nothing else is owed. You don’t pay for losing trades, you only lose your trade amount. Returns are speculative but usually average between 70 and 95%.

Assets You Can Trade:

  • Stocks, Securities & Futures
  • Indexes & Exchange-Traded Funds (ETFs)
  • Currency Pairs & Commodities

Not every stock will be available, but you can trade amongst some of the most popular and on-demand.

Damyan Diamandie once stated that trading binary options were “a combination of strategy, money management, and analysis.” To understand whether binary options are safe, you need to understand that there’s not always a simple answer.

Sometimes, it comes down to this…

Traders love binary options, for the ease of trading, potential of high returns, and quicker-than-average turnaround times. But, depending on the asset, state, or country options are traded, laws may prevent you from even considering engagement.

Binary trading is considered an exotic investment, because you will either receive fixed monetary earnings, or you’ll receive absolutely nothing at all.

Some countries have established regulations to minimize fraud and protect their investors. Other countries consider binary options gambling and forbid it altogether. In fact, some earnings aren’t protected at all, because there are banks that equate binary options trading to online betting and casinos.

In many circumstances, we’ll see shell corporations set up, posing as legitimate brokerage firms. They’re basically set up to take your money and may not even place your bid at all. If your money is being held outside your country of origin, there is little that can be done to protect you from dispute.

Binary trades are never paid on margin. Brokers will always expect premiums to be paid upfront. This means your risks will always be limited to the amount you decide to trade. While you can trade with an investment as low as $10, the real rewards come from larger investments. Some companies require a minimum balance before they even fund your account.

When binary trading, you’ll always need to be prepared. You could easily lose your initial investment. But, you could always generate a substantial return with a few successful trades. To make a decent profit, you will have to win a majority of your trades over a short amount of time.

The good news is, you’ll always know in advance the risks associated with loss.

The Risk vs. The Reward | There’s a fine line between taking a gamble and making an educated guess.

Learn everything you can about binary options and ways you can maximize your trade. Develop strategies that help you manage risks, perfect your style, and optimize your efforts going forward. If you don’t, you are pretty much handing over your wallet without even questioning “why?”

Remember, it’s not possible to lose more than the cost that you’ve already spent per trade. But, you don’t want to lose that investment, either. With capped risks do come capped profits, but it’s easier to profit from your game when you have done your homework and studied your trades.

By the way, you’ll need to understand which trading method works for you. There is no single best strategy, and “you’ll be betting against the banker” in every single way. So you’ll want to understand how much of a loss you would take in correlation with the reward you’ll be earning, should your predictions be correct. You’ll want to adopt good trading habits and rely less on luck.

Learn more about the various types of binary options trading.

Remember, you don’t actually own the assets or securities.

Some binary options expire within a minute, while traditional options can last up to a year. Unlike traditional options trading, however, you don’t actually own the assets that you decide to place your bets on. So, you’ll inherently want to study the asset beforehand, instead of blindly placing your bid.

Never invest more than you can afford to go without. While some brokerages require $250, just to get you started, your actual bids can be placed with as little as $10.

Then, there are regulators. | Governments vs. Institutions.

According to

“Options fraud has been a significant problem in the past. Fraudulent and unlicensed operators exploited binary options as a new exotic derivative. These firms are thankfully disappearing as regulators have finally begun to act, but traders still need to look for regulated brokers.”

Transparency is necessary when engaging in binary trades. Greater control of your trades will afford you a much higher reward in spite of the risks. Knowing your payout is important when striking a price (accepting the price of the option at the time of the binary).

Most traders prefer US markets where there is less volatility, a universal currency (USD), stricter regulations, and more protections for its investors. In the US, alone, there are three exchanges, as regulated by the Commodity Futures Trading Commission CFTC, offering binary options trading. Nadex is often considered the first and largest for individual retail traders.

Regulations have made it illegal for non-US brokerage firms to solicit US residents. In lieu of these regulations, brokers would receive heavy fines and are, therefore, deterred from targeting US traders.

Behind the United States, the United Kingdom has earned favorable interest by the rest of the world. Notably, the UK is one of the first places to establish binary trade within its borders.

Regulators are put into place to combat unnecessary fraud within our markets. Scams are rampant in the World of Options Trading. And there are several brokerages that seek out loopholes that would allow them to gain maximum exposure of your newly-earned dollars.

Regulators are vested in our success. Their interest is keeping us engaged within the markets, while providing us with protections against criminal syndicates that would, otherwise, cause us harm. They require reputable brokers to maintain compliance and have established a strict set of rules and guidelines they must abide by.

These regulations guarantee that sufficient funds are available should something go wrong and allow the recovery of lost assets should our brokers go bust and/or missing in action.

When dealing with unregulated brokerage firms, you’ll lose your investment when and if the brokerage is suddenly shut down. On non-regulated platforms, your money isn’t necessarily placed within a trust. And, bad actors could get away with your money, taking home all of the cake!

Regulators, Based on Top Markets:

  • Financial Conduct Authority (FCA) – UK regulator
  • Cyprus Securities and Exchange Commission (CySec) – Cyprus Regulator, often ‘passported’ throughout the EU, under MiFID
  • Commodity Futures Trading Commission (CFTC) – US regulator
  • Australian Securities and Investments Commission (ASIC)

When it comes to brokerages... Do your due diligence.

Binary pricing can easily be manipulated by over-the-counter brokerages. Depending on the platform you’re using, the type of binary options you’re trading, whether the brokerage is reputable and where in the world it is located, you could fall victim to those, who would otherwise prey on less seasoned options traders.

For this, you’re always going to want to make sure your broker hasn’t been blacklisted by the industry or placed on a known scammers list.

Regulations require that brokers provide transparency of services, including all fees associated with binary options trading. This makes it easier to choose a great broker.

A little bit of advice would be to make sure the broker you choose is well-regulated and has a reliable platform. By researching this platform in advance, you will remove the risk of delayed transactions that would otherwise block all your winnings. You’ll also be prepared to deal with any unforeseen events.

Analyze user feedback to find out if a platform is legit. Do they have fine print, and do they take out unnecessary expenses, thereby minimizing your wins?

Industry trends don’t always correlate with the market.

While binary options trading appears to be less volatile than other options, a lot could go wrong (as we have seen recently) in a matter of an hour. So, when someone says that “volatility does not affect binary options,” take it with a grain of salt.

In less than a day, with very little news, and few words from our government, everything can change.

Sure, “as long as your prediction comes to life and your trade is correct once it reaches its expiry time, your investment will most likely duck and dodge surprise volatility. But, recent drops in the stock market have proven how quickly change can happen. Tech stocks, alone, have plummeted, while recovery stocks sent the stock market to reach heights it had never reached before. Meme stocks have proven this, as hedge funds and retail traders went to war with one another. And, volatility within our economy has sent traditional traders off to protect their assets.

As a market trader, in general, you’re immediately subject to such factors, as they happen:

  • Market Corrections & Mass Sell-Offs
  • Breaking News & Rumors
  • Laws & Presidential Orders
  • Immediate Economic Concerns
  • National Emergencies
  • Statements by the Federal Reserve
  • Drastic Change within the Bond Markets
  • Earnings Reports & the Threat of Reverse Stock Splitting

Nonetheless, binary options can only be traded during normal trading hours. So, your options are less likely to fall victim to the extreme volatility of after-hours and/or premarket trading. This also means that you can’t take advantage of these patterns, either.

You win some you lose some... Set yourself up for a win.

Because Binary Options Trading is considered more of a speculative activity, you should always prepare to take losses like a champ. When markets constantly move, the outcome of investment doesn’t always have its certainties. While your earnings potential is limited, capped risks mean protected interests. Earnings can stack up. But, remember, so can losses.

One way you can hurt yourself is by simply not paying attention. Missing an expiration or trigger and trading the wrong type of binary option could be a setup for immediate failure. Not selling a binary back at the right time, or misunderstanding the amount of risk that you’re actually taking, could end up bleeding your pockets.

While there are reasons you should be apprehensive about using automated tools and services, there are reasons to take advantage of AI, robots, and signaling services:

  • Find a platform that notifies you of moving markets.
  • Use them to identify key times for calls and puts.
  • Create more educated guesses, while constantly on the go.
  • Stay ahead of market trends, especially when you’re busy.
  • Make more informed financial decisions.
  • Seize on missed opportunities, earn larger rewards.

Many of these tools will allow you to anonymously see all limit orders in the market before placing an order. Having this data at your fingertips, it will be easier to navigate winnings and decide when to enter or exit.

Since 2008, retail traders have been able to engage in binary options trading through an over-the-counter market. Although banks and institutional investors are no longer needed when engaging in such practices, novice traders should consult with a financial advisor to develop lucrative strategies that will provide them with additional leverage.

Simple research, due diligence, and risk-based analysis will shield you against scams and attacks. You’re less likely to predict in the wrong direction, and your assets will be safe. But, avoid these principles, and your doom is up to fate!

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Jessica N. Abraham is a writer, designer and publicist, specializing in Business, Technology and the Jobs Industry. | | Twitter: @jessicanabraham

Ohio State

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