Most people are always on a lookout for a new way to invest their money and make a profit. One of the more popular new ways of trading is in the binary option market. It is not a ‘new’ market per se, but since the emergence of the internet as a trading venue, it has definitely been on the rise, with more and more traders engaging in binary option trades than ever before. But, is it a good idea to invest in binary options?
Binary Options Explained
In order to even start debating whether binary options are a smart investment idea, we first need to explain what they are. In essence, a binary option is the option where the payoff can have only two possible outcomes, called “in the money” and “out of money” when the option matures. In essence, you are putting your money, predicting whether a commodity will be trading above or below a certain price at the time the binary option expires.
For instance, you think that a stock of a company we will call X will be worth more than a $100 at 2 p.m. today. You purchase a call option on such an outcome. You are then showed how much money you will earn if you are right (usually earning a large profit). If you are wrong and the stock goes down with its value dropping below $100 by 2 p.m., you will lose your money. Binary options do not involve only stocks as they can be taken out on currencies, assets such as gold or oil, etc.
Where is the Attraction?
There are some really good reasons why binary options are becoming more popular with each month that passes. The first of these reasons is that one can make quite a bit of money trading in binary options. Quite often, the profits that can be made in the binary option market are manifold of the money you actually invest. In addition to this, binary options are traded at a rapid rate, often closing within hours or even minutes from purchasing an option.
In addition to this, you do not need any kind of formal education to trade on the binary options market as you will be investing usually without performing different kinds of analysis that require theoretical knowledge. That being said, you will also want to have a binary options trading strategy and learn about how the market moves.
What are the Risks?
Like all high-yield markets, the binary option market also comes with a number of risks. One of the main reasons why people choose not to start investing in binary options is that they are often traded on unregulated exchanges and websites where the traders’ money is not safe. Luckily, there are plenty of websites and exchanges where you can safely trade in binary options, such as 24Option, the largest trading platform for these options.
In addition to this, binary options are notoriously difficult to predict, especially if you are not serious about your trading. Due to the short maturity time, the moves on the market are quite hard to imagine and if you are not careful, you can end up losing large sums of money. With a good strategy, however, a trader can definitely make a profit and it is therefore important to read up on binary options and learn from people who have been doing it successfully.
The Bottom Line
In short, binary options are highly volatile, but come with potentially huge payoffs. If you find a reputable place to trade in binary options, there is really no reason why you shouldn’t try your hand at this kind of investment. This is especially true since many binary option trading platforms allow you to first try it out for free, before you make a deposit and start investing for real.