Binary option trading is classified as an ‘exotic investment’; a classification that would usually suggest a degree of complexity. When it comes to binary options, however, this connotation does not apply. Binary option trading is extremely simple. In short, a trader invests in a binary option that can have one out of two outcomes. Either the trader is wrong and looses their investment, or is correct and earns a profit.
The outcomes are based around each binary option’s proposition. Will the price of a commodity, foreign exchange or stock see a rise or fall by a fixed time? Using financial analysis, market research and economic common sense, a trader can predict whether the proposition is likely to come true or not. For example, let’s say you buy a binary option based on the proposition, “will the price of oil reach [X amount] by [X time]?”
Should the value of oil indeed rise by that specified time, then the binary option will become worth a certain amount (always less than the amount for which it was bought) and this is what you will receive. Should the value of oil not reach this specified amount by the set time, then the binary option is worth nothing and you will lose whatever money you paid in purchasing it.
If a binary option proposition is, by common consensus amongst traders, likely to come true then the binary option will be more expensive to buy. Riskier binary options (those less likely to come true) will cost less. If you feel a binary option will become worthless, you can sell it to some willing bidder. In other words – a trader is either buying a binary option that is expensive but low-risk in that it is almost guaranteed to result in a profit, OR a trader buys a binary option that is very cheap but would result in a large profit in the unlikely event that its proposition is true.
Besides its simplicity, binary option trading has become a favoured means of investment amongst traders because of the flexibility it allows. Traders can decide when and from where to invest, and choose the markets in which they want to trade.
Let’s take a look at some common myths associated with binary option trading, to clarify the fact surrounding this increasingly popular means of investment.
Myth: Binary option trading is illegal.
One of the most pervasive – and incorrect – binary option myths is that the practice is outright illegal in the US. Binary trading is absolutely legal within the states providing your broker meets certain requirements. These requirements include being listed on a CFTC-registered exchange. In the words of https://ww.cftc.gov, the only time binary option trading would be against the law is if a broker tried to “solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction’ contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt.”
Myth: You have to invest big before you can start trading.
Not at all – traders can start trading with whatever amount of money makes them most comfortable. This could be a little as one dollar!
Myth: You can never earn substantial profit with binary trading.
Whilst this statement is untrue, it is understandable as to why certain people might believe it. There’s no getting around it – binary options trading, although very simple, requires immense skill on behalf of the trader if he or she is to earn a substantial profit in the long-term. A trader must predict correctly in the vast majority of times if binary option trading is going to be worth their while. This is not a type of trading where you can rely on you instinct. In-depth knowledge of your market and a general understanding of economics is essential.
Myth: You can get rich quick with binary option trading.
You should always be suspicious of anyone trying to convince you of a method to ‘get rich quick’. While experienced binary option traders can make respectable amounts of money per hour, the fact of the matter is that binary option trading is a form of investment like any other – practising patience and gathering experience is what will make you successful in the long run. Most likely, you will start by making losses or only minimal amounts of profit. In time, you may start to gain an impressive side income with binary trading, but don’t expect to become a millionaire.
Myth: Binary trading websites are out to scam you.
Unfortunately, the binary option industry has indeed suffered from an influx of scammers and illegitimate brokers. However, any trader listed with CFTC must obviously adhere to all relevant regulations and laws. The main way to avoid scam websites is to simply research your brokers. Read reviews or consult binary option trading websites such as https://binaly.com for lists of approved brokers.
Myth: Sign-up bonuses amounts to free money.
Big bonuses may seem too good to be true – they are. You could receive as much as $300 in trading cash upon signing up with a binary option broker, but be sure to read the terms and conditions. For starters, you won’t be able to use this money for anything other than trading on their website. Secondly, some brokers will require you to double or triple the bonus amount before you can make a withdrawal. Be careful not to fall for bonus incentives where the disadvantages outweigh the benefits.
Myth: Demo accounts aren’t necessary.
You may be itching to start trading with real money so you can earn real profit sooner – but you’ll regret it when you find that investing well isn’t always easy for beginners. Trade with fake money in a demo trail first, until you are confident to revert to real cash. Binary option trading has its risks even for the seasoned trader. Be realistic about your ability and wise in your investments. There’s nothing wrong with playing it safe in the beginning.
In summary, binary option trading can be safe, legal and a perfectly legitimate means of earning a side income if you are vigilant and wise. Don’t fall victim to scam websites, impractical bonus deals or your own impatience.