Binary options trading is currently a buzzword in the make money online niche. The possibilities of earning a quick income are enticing enough to dazzle any newbie who wants to make money fast. But you only come to know, how deep the water is once you jump into it. Does that mean BOT is a scam or unethical? No, it’s not. Although it is legal and an ethical way to make money yet the returns are not as dramatic as is presented to a new learner.
BOT, in simple language, is one of the simplest trading form in which the trader receives either a fixed profit or fixed loss. The simple beauty of this type of trade is that you know the potential return, and you can set the maximum amount of damage that you can incur. I will discuss the goodies and the risk factors later in this article. First, let’s understand what it is:
What Is Binary Options Trading?
In layman terms, the term “binary” means either of two results. In other words, it could be “Yes” or “No”, “Up” or “Down”, “0” or “1”, etc. With regard to trading, it means that the trader will predict if the price of the commodity/stock will go up or down. Binary options trading is different from other trading options as the profit or loss you receive is fixed irregardless of the commodity you are trading on.
Let’s understand the difference with an example:
General Trading: What happens here is that you purchase a commodity, suppose at a price of $100. If the price goes up and touches $120, you are in a profit of $20. On the contrary, if the commodity price drops to $80, you are in a loss of $20. As simple as that.
Binary Options Trading: It works by future predictions. You choose a commodity and make a prediction, if its prices will go up or down, near in future. Suppose, you predict that the price will go down. You will get the profit when the price drops. On the other hand, you will incur a loss if your prediction is wrong and the price goes up.
How Binary Options Trading Works?
“Expiration Time”, “Call” and “Put” are the three most important terms used in trading. Let’s see how these words work:
- You choose out of a wide range of commodities, currencies, stocks, etc.
- You “freeze” the current price of the commodity.
- You make a price-change prediction that is supposed to happen within a time frame before it expires e.g. 15 minutes, 2 hours, etc.
- You set it to “Call”, if you think the price will go up.
- You set it to “Put”, if you think the price will drop.
- Now wait until the expiration time and check on the changes.
So, based on above terms, let’s understand it further with some real values:
- If the price goes up: You will earn a profit if you had set it to “Call”. You would incur a loss if you had set it to “Put”.
- If the price goes down: You will earn a profit if you had set it to “Put”. You would incur a loss if you had set it to “Call”.
- If the price remains same: No profit, no gains.
As with any system, there are always advantages and disadvantages. In the following section, I would go through
Advantages Of BOT System
- High Returns: One of the most pleasing aspects of binary options trading is the high returns related to the trades. In most bags, you’ll see return rates at 70% or above that is something eye catchy.
- Fast Returns: There is no need to wait for months or years to get a return on your investments. When it comes to binary options, it’s probable to see returns in as fast as 60 seconds. Most binary options traded have an expiry time of 1 day or shorter.
- Far From Complications: For a beginner, it might take months to understand that how the trading methodology works. But the BOT is quick and easy to learn and understand. A beginner can start playing with it right from the day 1.
- A tinge of Excitement Factor: Due to its fast lick and inherent randomness, investors will find BOT, despite the high level of risk, as an exciting option.
- Wide Array Of Assets For Trade: There are plenty of diverse assets like commodities, stocks, currencies, etc. that are available to trade. It provides a high mode to diversify risk and allows investors to manage the amount of risk that they can incur at a given time.
Disadvantages Of BOT System
Sometimes, the things are great on the paper but harsh in the reality. No doubt, the higher return rate could appeal to you as an enticing factor yet the system does come with some flaws and loop-holes. If you are jumping into it, please mind:
- Non-Regulated Broker Space: Most binary optinos brokers are masters of their own wish and are not tied under any regulatory body. Do not rely much on a broker next to your house. He makes money when you lose so it’s essential to understand the basic break-evens yourself. However, Anyoption and Nadex are regulated brokers.
- Game Of Luck: In the nutshell, it is, literally, gambling. Although there are many tips and tricks for analyzing the current and past data so as to make a reliable future prediction yet its a game of luck and you may go wrong eventually losing money. Avoid poking too much money too quickly.
Additionally, some so-called marketers might try pushing sales of some so-called software with bogus claims. Stay away of them. No software can do reliable prediction. It’s still a luck-game.
- Risk Of Bogus Platforms: It doesn’t end here. You need a chunk of luck to find a reliable trading platform as these are not regulated by Federal Trade Comission. As long as its working, it’s OK, Once the trading company disappears with your money, there is no one who cares for your concern or who you can file a complaint to.
- Average Doesn’t Favor You: The excitement factor, involved in the type of trade, makes it an addiction and you might lose a lot of money before realizing it. If you earn, you will make up to 80%, but If you lose, you will lose your whole investment. Let’s assume you are right 50% of the time. Still, your earning is $80 and loss is $100. Overall, you have to be right for more than 60% of the times so as to see some profit and you should be right for more than 80% to call it a sustainable income.
A Few Words To The Beginners
Overall, It does not demand too much time to learn it. When trading in binary options, some simple practices needs to be followed as the trade is uncomplicated and straight forward. The only need is to take heed of some core practices on the regular basis. Learning a few core concepts is OK but avoid investing in apps or software.
On the other hand, you can’t survive on it as your only source of earning as I have not seen BOT being a much profitable source of income for people. It’s a day-to-day game. Someday, you are happy and in profit, the other day, it’s up-side down. So the beginner should avoid investing in heavy amounts and should start small and grow gradually, that’s my take on Binary Options Trading, especially, for the beginners.