Even though they are a fairly new form of investment vehicle, binary options are growing quickly in popularity for the potential high returns they can bring.
These returns are possible over a short period and also provide for an exciting investment environment.
For anyone wanting to trade in binary options they need to understand what the pros and cons of binary trading involve to ensure success.
So what are binary options?
It’s important to remember that binary options trading does not involve buying assets; there are no commodities or shares that change hands.
Essentially, the binary options trader will be making a prediction that the value of a particular financial asset will fall or rise.
By predicting correctly, the binary options trader can earn a lot of money but it should also be appreciated that by predicting incorrectly the trader will make a loss.
One of the biggest pros for trading in binary options is that investors don’t need that much money to begin trading, unlike many other investment vehicles.
Trading in binary options
This means that trading in binary options can begin with just a few hundred dollars which is a big pro for many people.
The next biggest attraction for traders is the potential to earn much higher returns than other trading options.
For instance, financial experts will say that by trading in commodities, stocks and other financial assets, a trader will be doing well to earn returns of around 10% over a few months.
By trading in binary options, the potential of earning 80% in returns is a realistic prospect.
Another major pro for trading in binary options is that it’s a fast-paced environment; trades can be done over a few minutes rather than over a few days, weeks or months for commodity trading.
Trades in binary options
Most trades in binary options expire within several hours which helps to attract a wide range of people to binary trading.
Finally, the other big pro for trading in binary options is that the management of risk is much simpler. This is because the trader will know how much they can earn or lose when they make the trade.
There are some fairly obvious cons to binary options trading and major one is the fast-paced and exciting environment; the short expiry times of the trade can make it difficult to predict profits over a period of time.
Another drawback is that the market is being increasingly regulated because there are worries over it being such a new investment vehicle that potential investors face scams and fraudulent brokers.
Work with a regulated binary options broker
For this reason it’s important to work with a regulated binary options broker and spending the time initially to find a broker you like, and who has a platform you can understand, will be time well spent.
This last piece of advice is crucial because research will be important and binary options trading is a rewarding and exciting way to earn money – but as with all investments the opportunity to lose money is just as great too.