Binary options – The pros and cons

Binary options are an emerging as a fan favourite among the online trading community, with the novel trading format gaining pace across the industry.

Online brokers are fast picking up binary options allowing their users to experience this new and exciting genre of online trading.

What is this type of trading?

Trading with binary options allows you to trade a wide variety of forex pairs, stocks and commodities but with a new twist. Binary options allows traders to choose a product and predict whether it will increase or decrease in value within a specific time period. The fundamentals are extremely simple, predict correctly you win, incorrectly you lose. The size of your loss or gain is dependent on the size of the increase or decrease that product sees.

Now that you know the basics, below we’ve listed out the key pros and cons of this format to help provide some insight before you get stuck in.

Pros of binary options trading

Ease of use: When compared to a traditional trading format, binary options trading is really rather simple. Traders of any level are able to find it enjoyable, straightforward and profitable as it doesn’t require much (if any) complex decision making. This results in it being a perfect choice for many online traders who don’t want to get involved in the nitty gritty of complex trading. You simply select your variables and predict the direction against the value the broker offers, all of which can be done from a single dashboard.

Risk management: Online traders can afford to rest sound a night in this department. Managing your risk isn’t a pressing issue when it comes to binary options as the level of risk you choose to take can be managed, tracked and reined in. This form of trading allows you to apply or set a risk tolerance depending on the size of each position you take. If your prediction is off and everything goes wrong, you’ll be reimbursed with the rebate amount and will not lose the entirety of the money you risked.

Quick payoff: Compared to most other forms of trading, the return on your capital investment when trading binary options is very quick. Brokers will also often offer somewhat of a payoff on your investment which can sit as high as 70%. You can often see this return within hours, or even minutes. Even when your prediction is off and everything turns sour, you won’t always make a complete loss. There’s always the possibility of receiving a small percentage rebate.

Cons of binary options trading

High risks: Like with conventional trading, if you’re aiming to reap the rewards and turn a higher profit, you’re going to have to put your money on the line. Big payoffs come as a result of bigger risks. The brief time frames that you operate in with Binary options also contribute to the high risks associated with the format. Market movements will be inconsistent and difficult to predict so you have to strike while the iron is hot.

Few trading tools: Binary option brokers like ETX Capital will often provide a number of informative materials and tools to help and support your decision making, however these tools aren’t always available on your base of operations, the primary dashboard. With the fast paced, high risk nature of this format, it’s relatively easy to get caught up in the moment. You may react instinctively without checking your KPI’s (key performance indicators) and end up in a sticky situation.

Binary Options Trading is an interesting and novel trading form that is fast becoming a favourite among online traders. You can give it a go for yourself on a number of online brokerage sites, and see what the fuss is all about.