Financial traders have a diverse range of markets to choose from. These includes forex, stocks, CFDs, indices cryptocurrencies and options. Binary options are relatively new compared to other financial instruments (except cryptocurrencies). However, many traders consider them high risk. Some will even label options trading the same as gambling.
The truth is, any form of financial trading involves risk. Money can be made or lost regardless of the type of financial instrument you're trading.
But what's making binary options so popular? Below are six reasons.
You can make money whether the markets are trending or not
Most financial markets will only make you money when the markets are trending. For example, if you're trading stocks, you can only make money if the price goes up or falls relative to the strike price. In addition, the price change must be significant enough for you to make a good profit.
Binary options are much different. All you need to do is predict whether the price will be higher or lower after a certain amount of time. Since options have a fixed return, a small change such as 0.001 in the direction you predicted will earn you profits of up to 90%. This comes in handy when markets are ranging. That is, the asset‘s prices are experiencing small price movements.
Investing in binary options doesn't require a huge investment
One of the reasons why options brokers are increasingly becoming popular is the low deposits they require to get started. You can easily open an binary options trading account for as little as $5. In addition, you can open an options position with as little as $1. With returns of up to 90%, a $1 trade can make you $.90 within a short amount of time.
Assets such as stocks and cryptocurrencies bought in exchanges require a huge investment. For example, if you wished to buy Bitcoin, you would need to pay at least $5000 for a single coin. In addition, you don't know whether the Bitcoin value will increase in the near future.
Binary options offer a fixed return
Another reason why binary options are so popular is that you know the potential profit even before you open your trading position. This is calculated as a percentage of the amount you invest in a trade. Most platforms offer returns ranging from 60% to 95%.
The return depends on the assets you're trading and volatility. This means that returns on a particular asset will change during the day. Knowing this, you can easily choose to trade during sessions where your trading platform offers the highest returns. This ensures that even if your trades end up losing, you can easily recover these losses through several winning trades.
The profit you might earn when trading other financial instruments largely depends on the asset‘s price movement. If the price moves further in the direction you predicted, the higher your profit and vise versa.
The maximum you can lose is the amount placed on a trade
In addition to knowing how much you can earn through profitable options trades, you also know how much you stand to lose even before you enter position. The maximum amount you can lose on an options trade is your trade investment. Some brokers such as IQ Option also allow you to exit trades before they expire.
If the trade was turning a profit, IQ Option will give you a portion of what you were to earn. If it was losing, a portion of your trade investment will be deducted. This is called profit after sale. For example, if you had invested $10 in a trade with 80% return and the trade goes your way, you might decide to exit before trade expiry.
In such a case, IQ Option could give you $3 to $5 as profit and keep the remainder. If the trade was losing and you decide to exit, IQ Option might deduct $3 to $8 from your initial investment. This allows you to avoid losing the whole $100 investment.
When trading financial instruments such as forex and commodities, you stand to lose more than your trade investment. If the trade goes against you, your percentage losses might exceed 100%.
At this point, your broker will use your account balance to keep the trade open. That's why it's always advisable to use stop losses when trading such markets.
Trading options is easy to learn
Some traders will argue that options trading is hard. But this isn't the case. Options traders will use the same charts, tools and trading strategies used by traders in other markets. In order to succeed as a binary options trader, you must learn how to read charts, use indicators, have a trading strategy and understand trading psychology. Traders in other markets must also do the same.
The interesting thing is that, traders who have experience in other markets such as forex often find options trading quite easy.
You can earn profit in as little as 1 minute
In most markets, you'll have to wait until the underlying asset‘s price reaches a predetermined strike price. This can take seconds, minutes, days or even weeks. Binary options are designed such that you can make profit in as little as 1 minute (Note: we don't recommend trading short expiry times).
The reason for this is that options are set to expire after a specified period. In addition, all you need to predict is whether the price will be higher or lower than the strike price upon expiry.
Best of luck in your trading!
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