There are some similarities between binary option and stocks–but just as many differences. Binary options are also called “all or nothing” options because that’s exactly what it is. The investor either gets a set amount of money or assets, or nothing at all depending on what the closing value is. The good news is that everyone knows up front exactly how much will be gained or lost. There are also no fees, unlike the stock market, which is a huge perk for many traders.
The Basics
Binary options can be purchased on almost any platform. Usually, the investor purchases binary options directly from the issuer–which is why there are no fees (there are no middlemen). For example, an investor might purchase a binary option for ABC stocks at $50 with a $500 return and a maturity date is set. If the maturity date arrives and ABC is selling at $50 or more, the investor automatically gets $500. If ABC is selling below $50, the investor gets nothing.
Smaller Windows
Maturity dates can be set for virtually any time, but it’s often within the same day and even just a few minutes. This is because savvy investors have been watching stocks for quite some time and have an idea of when it will rise and fall. However, nothing is foolproof. In many ways, trading binary option is similar to gambling in Las Vegas, and it’s very easy to lose everything. If it wasn’t, issuers wouldn’t offer the option.
The Lock In
Once a maturity date is set, there’s no way to liquidate the option or sell it before that time. This means there’s no room for mistakes or self-doubt. When getting into binary trading, just like the stock market, it’s important to tread with caution. Start out with small amounts, and never invest anything beyond what can be lost. Issuers count on a mix in their favor of binary options that don’t surpass the amount struck by the investor.
Gambling or Investing?
The biggest criticism with binary trading options is that it’s more like gambling than actual investing. The odds are in the house’s–or in this case, the issuer’s–favor and there are no skill requirements. To invest in the stock market, a person is nearly required to do some research and set up a brokerage account. This learning curve helps weed out whimsical “investors,” which in turn protects them.
For a binary trading newbie, the most important thing to remember is caution. Assume that every single option will be lost, and invest accordingly. Some people do very well with binary options, but it’s not the majority.
