Binary Options are gaining in popularity. Let’s find out what makes them so appealing and why traders are switching from trading Forex, stocks or commodities to trading Binary Options.
1.) Accessibility
Trading stocks or other assets requires a large amount of starting capital. You can get access to the same markets by trading binaries. The minimum investment needed to start trading binaries can be as low as $200.
2.) Ease of Use- Simplicity
With Forex you have stop Losses, pending orders, limit orders, one cancels other orders, and complicated position sizing calculations…and that’s just the tip of the iceberg.
But Binary Options are much easier to use. With Binary Options you don’t care about anything other than the direction of the underlying asset and you can easily choose the direction. If you buy an ordinary stock you can only hope it goes up. If you expect it to go down you can sell or sell short but if it only moves a few points you may not even cover your commission costs.
However, If you trade binaries on EUR/USD, you really don’t care how many pips price travels in a direction as long as you get the direction right. You simply choose the direction by selecting Call (if you think price will go up) or Put (if you think price will go down).
3.) Risk Management
As an investor you must think about risk management if you are going to survive to trade another day and that’s another reason why binaries are so popular: when trading any financial market (Forex, stocks etc), position sizing is very important. Normally, you don’t want to risk more than 3-5% of your portfolio on a single trade so if you use stop losses at 10% of your position and you break your portfolio into 3 positions you would theoretically only be at risk 3.33% on any one position. With binaries you just enter the amount you are willing to risk and that’s it. Risk management was never easier – total visibility and control of how much you can lose by simply entering a number.
4.) Profitability
One pip can generate 95% return on investment (ROI). Since Binary Options trading is not about distance traveled by the price, it’s simply about direction. When trading other markets, the more price goes in your direction, the more you profit. Conversely when trading ordinary options you can get the direction right but if you get the time or price wrong you can still lose.
5.) Speed
One of the key factors in an investment is how fast you can get your return. Obviously earning 10% a year is not as good as earning 10% month. Plus due to compounding at the end of the month you will have 110% to invest which could then earn another 10% and so on. Binary trades are extremely flexible, a single trade can be over in as little as one minute. Or you can choose a longer expiry time, such as 15 minutes, half an hour, an hour, daily, monthly or longer, so you can choose the time period appropriate for your trading strategy.
Image courtesy of Renjith Krishnan / FreeDigitalPhotos.net
