Common Misconceptions About Binary Options

At least someone makes money on binary options. Anyone actually making money from Binary? - Binary Options - enemyremains.com Forex Trading Forum

Binary Options Trading: What You Need To Know - Pip Mavens

Five years ago, no one had even heard of it. Who remembers the fuss over bitcoin trading?

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Vanilla Forex Options Traditional option contracts were at least someone makes money on binary options introduced for people to hedge against future uncertainty. Learn the basics of how it works here. Because then they would be getting revenue in a weaker currency USD while having to pay expenses in a stronger currency Euro in their home country.

This results in a significantly lower net profit, or even worse, a net loss.

Forex option contracts were thus introduced to solve this problem, as any losses stemming from currency fluctuations could be offset by profits made from buying options contracts. This is, and continues to be, the main purpose of Forex option contracts. Now of course, in order for the German company to buy call options, someone has to be willing to sell it to them. This, by the way, is how financial markets work. Participants have varying views of the future, and so trade against each other in line with their own expectations.

In this transaction, the German company pays a fee in buying call options to protect against future currency risk, while the financial institution gets paid to take on that risk.

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To summarize: The German car company looks to limit future currency risk by buying call options The financial institution or speculator collects a fee from selling call options and assumes the currency risk More generally: Option buyers pay a fixed fee for the potential of a very large profit Option sellers collect a fixed fee for the potential of a very large loss Forex Binary Options In a vanilla option trade, the buyer does not know in advance the amount of money he stands to win.

Similarly, the seller does not know in advance the amount of money he stands to lose. The amount is ultimately determined by how far the market price moves. In a binary option trade however, the trader will know in advance the exact amount he stands to win or lose, before taking the trade. Binary options are named the best platform for binary options trading such because there are exactly only two possible outcomes: you either win a fixed amount, or lose a fixed amount.

Binary options ask a simple question: will the price be above [price level] at [time]? If you think so, you buy the binary option.

Can You Really Make Money Trading Binary Options?

Upside of Binary Options As you can see, binary option trading can be simply explained and is easily understood. This is a big benefit to new traders, as they can quickly learn the basic mechanics and start trading right away.

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A related benefit of this, is having to make fewer trading decisions. In spot forex trading, for example, one has to decide: Where and when to enter the market The appropriate trading lot size to use How to manage the trade Where and when to close the trade In binary option trading however, there are only 2 decisions to make: Whether the market price will be above a certain price level at a certain time How much to risk on the trade As such, binary options offer a much simpler trading process.

And, since the potential loss on each trade is fixed, you will never get a margin call. Lastly, options offer traders the unique ability to make money by predicting where prices will not go. This goes for all types of options, not just binary options.

Common Misconceptions About Binary Options

So… does binary option trading sound good? Sure it does! Well… at first glance, anyway.

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Downside of Binary Options The most obvious downside of binary option trading is the lack of flexibility. In this sense, a binary option trade is typically an all-or-nothing proposition. These points on inflexibility can be summarized by the following comment found in the Forex Factory forums : I once traded a forex news item where I closed a wrong call with a 20 pips loss, and ended up making pips on the reverse trade, giving me a net profit of pips.

This scenario cannot be replicated in binary options.

Anyone actually making money from Binary? - Binary Options - enemyremains.com Forex Trading Forum

The implication of these factors is that the average loss per trade will always be larger than the average profit. This is a structural i. The promise of regular fixed payouts and a focus on short-term profits are exactly the characteristics that appeal to people looking for a quick buck. Unfortunately for them, what feels good in trading is typically a losing approach.

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This is an exceptionally difficult feat to accomplish. In other words, you can correctly predict future market prices and still lose because you got the timing wrong by a few minutes. However All this said, there may be a genuine opportunity here… and that is to be a seller of binary options.

Whenever the market settles at a particular price level, it is not settling at a dozen other price levels. Does this make sense? This root concept may then be expanded whether to invest in bitcoins form a complete binary option trading strategy that you can use. Note however, that this is a benefit available to all types of options, not just binary options.

Binary Options Trading: What You Need To Know

One reservation I have about binary options is that they do not serve a major commercial purpose. Unlike the spot and derivatives markets that serve to benefit society, binary options exist solely for speculation purposes. In other words, it can be reasonably argued that binary option trading is not much different than a casino game.

Without a commercial purpose, binary options could be banned tomorrow and at least someone makes money on binary options impact anyone else other than the brokers and speculators.

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Compare this to spot Forex trading, or Forex futures trading, upon which global commerce relies. These markets are unlikely to be closed or banned, because they serve a useful purpose beyond speculation.

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Will binary options follow suit? My opinion is yes, I think they will. What Do You Think? Did I miss mentioning any important points? Let me know what you think in the comments below!