There are multiple platforms where you can trade any kind of assets such as FX, commodities, stocks, bonds… Leveraged or not. Binary options trading, why, you might ask. In this article we will try to explain what are the pros and cons of what is also called digital options, why you may want to consider it… Or avoid it.
What’s a digital option ?
A digital option is a bet taken on the direction of the price of any kind of asset. As the adjective binary suggests, there are only two possible outcomes : you either win or lose. This is therefore very different of trading FX for example, when you can set a stop loss to minimize the money you lose, or a take profit order to close your trade once your objective expressed in number of pips is reached. There is also no leverage in binary options trading.
Binary options, why it can be very lucrative
When you win a digital option, that is when the trade ends up « in the money » (ITM), it is indeed a very lucrative move. An FX option will make you pocket a profit ranging between 70 and 80% of your initial stake. So let’s say you predicted that the pair USDJPY will go up within five minutes and that you wagered 100 $, you will make a profit of around 75 $ if you are right. To make such a profit in FX in such a short timeframe, you would have to use a lot of leverage and advance a big margin.
However this has, of course, a big drawback : when you lose a trade, you lose everything. In our example it means a loss of 100 $, still in five minutes.
You got it : binary options trading is a high reward AND high risk proposition. With an average payout of 75 %, it means that to break even, for every 3 trades that you lose you have to win 4. It means that you have to be right 57.2% of the time, more than 60% of the time to make profits.
Can you make money with binary options?
This is a very widespread question on the Internet: can you make money with binary options trading? As I said above, you need to be right more than 60% of the time to start making money. Is it possible? Yes, there are numerous traders specialized in binary options that can show legit track records of 70% ITM, or even more. But they don’t achieve those results overnight. It requires experience, skills and knowledge. Discipline, trading strategies. If you have never traded in your life it would be unwise to start binary options straight away with substantial amounts. Educate yourself, start trading with a binary options demo account (the link we provide allows you to trade for an unlimited period of time with fake money, no credit card asked, no strings attached) or small amounts if you want to have the pressure of having something at stake without risking losing much. If you register with Spectre you can bet as low as one dollar per trade.
Should I do binary options trading and why?
This depends on your risk appetite. One might argue that you can also lose big by trading FX. This is true, but again it would depend on your profile risk. If you start with FX with a lot of money and a lot of leverage, you will probably blow your account as quickly as with digital options. If you are wiser, this is less risky. Another issue is to find a reputable broker. There are many scammers in BO, so be careful before sending any money. Or, better, use the digital options brokers powered by the blockchain.
Whatever your choice is, the advice would be the same: go step-by-step, follow a binary options course, take the time to acquire experience and know-how before committing substantial sums of money. Any kind of trading is a very emotional experience. Euphoria or anger can lead you to take catastrophic decisions that can cost you a lot of money. Being able to control your emotions is a very important skill to acquire, and it is not easy. Even experience traders can lose it because of their emotions.