What are Binary Options?
Binary Option is a bet that a specific stock, index, currencies or future will reach or exceed a specific price within a specific time. When trading binary options you must take into consideration three things – the particular market, the direction and when it will get there, this triple complexity makes buying binary options a deadly game because all these three decision must be right for you to make a winning. It is more of a derivative so it takes the liquidity and volatility of the parent market.
Are Binary Options Risky?
Binary Options offer leverage—the ability to control large positions with a small outlay of cash, binary options allow traders to make money fast when they are right, but if the market reverses, you walk away with nothing but a loss of your initial stake. Many beginners trade binary option either because they don’t have enough money or because of poor knowledge and preparation or simply because they aren’t mature enough to start trading remember that to be profitable in binary option, a trader must pass through the “3 loops holes” without missing any; you must choose a particular market, the direction it with go within a time frame.
Many at times we see lots of people trading binary option; these are people who will never admit that they are losers in trading forex, stock or probably future. These people switch to options instead of dealing with their own inability to trade, “thinking that option is a short cut and that they can walk round their problem” they have this believe that they somehow control the market with their fancy indicators. Any trader will know that the market can range for hours or more and can trend massively for just a few minutes before reversing. Nobody can certainly say where Mr. Market will head to in the future, despite we use the past data (psychological levels of traders shown on the chart) but we can never be always accurate. Mr. Market is like a kite, it flies to where ever the wind takes it.
Who Trade Binary Options?
Binary Options can be traded by anyone but they should not be used as a substitute for the real thing- forex, stock or future, often times we see people who brag about being profitable only to start losing thereafter. Successful traders sometimes use binary options to reduce risks or protect profits; serious traders trade binary options rarely and only in special situations.
In summary, trading binary option is quite good but it shouldn’t be seen as a substitute as I have earlier said, professional traders who trade binary option do so because they are trying to offset risk. I personal do not trade binary options because I consider it a bit risky; remember a binary option trader must pass through the 3 loops holes. Binary option do not offer a good trading opportunity and it is more like betting than trading, in binary option, when you call/buy or put/sell you stake a certain amount of your trading capital maybe $10 or less because of the large difference in the Bid-Ask price.
Spread might consume 10% of your profit sometimes, the spread might as well cover more than 30% of your profit and if your right, you get of $9 with a spread of 10% or you get a profit of $7 with a spread of 30% so you see that if your right you get a certain percentage of your profit and if your wrong, you lose the money that was staked. Binary option has become quite popular even more popular than stock because it is seem to people to be a safe haven or rather a Holy-Grail because there is a fixed amount that is either lost or a certain percentage won but in whatever market you may find yourself remember the risk associated with it, examine if its suitable for you.
There are quite a lots of book published on Binary Option, so much that I can’t give any recommendation. But, to understand the core of Binary Option I will advise you read “Lawrence MacMillan’s Options as a Strategic Investment” it is more of a mini encyclopedia.