If you have been looking to invest in stock but don’t have a lot of money with which to do so, then there is a good chance you have heard about binary options. This form of trading allows investors to invest as little as ten dollars and predict whether that company’s stock will rise or fall. If your guess is correct, you earn a profit. If not, you lose your initial investment.
On the surface, binary options trading seems like an excellent way to earn quick and easy money. However, many financial investments come with some degree of uncertainty as well as pitfalls– and binary options trading is no different.
That’s why it’s very important that those who would like to invest in this arena, no matter how small the investment amount, be well-informed and put a significant amount of time into researching the kinds of risks that are involved. The following list provides a few of the risks and pitfalls that binary options traders are faced with:
You’re Playing The Odds
This is an understood idea. When one chooses to put money into a venture it’s not always guaranteed that they would receive any profits. However, are you aware to what extend you’re playing the odds? Binary options involve markets that can move in several different directions without much warning.
Although there are a few ways to help you with predicting potential market shifts, even when you are extremely thorough in your analyses it doesn’t always lead to accuracy.
Also, your odds aren’t even 50/50 even if you make random investments. Due to the payout rates offered by brokers, which are usually lower than 100%, your winning chances even if you invest randomly will always be against you.
You Can Only Earn So Much
The good news about binary options is that the amount you’re able to lose is capped; you can only lose so much. The bad new is that, so are your gains; you can only gain so much.
This is something that is rarely mentioned when one researches binary options trading. If you are the type of person who likes to aim high when setting financial goals, then you should understand that a glass ceiling exists for all investors. The profits are fixed which means your earning potential is limited.
You Are At The Mercy Of Decimal Points
One of the benefits of investing in the traditional stock market is that progression is analyzed over a considerable period of time. Binary options, however, do not offer this particular feature; they are measured by the slightest ticks.
What this means is, that the values are often determined by as many as four or five decimal points. With binary trading, even 0.0002 points can turn out to be the difference between a trader making a profit or completely losing their entire investment.
Most of the Brokers are not Regulated
The majority of binary options brokers that exist are not regulated by any authority. This makes thing difficult because there are no protections in place to prevent any abuse. If a broker steals your money most of the time you will have no chance to get legal help.
The situation is especially worse in the United States where offshore binary options brokers are banned completely. Nevertheless, almost all binary brokers that accept USA traders operate from offshore jurisdictions. So, if you get defrauded, there’s no one there to help you.
You Don’t Own Anything
In the traditional market, when someone invests in a company, they receive a portion of that company. They essentially become a shareholder, no matter how small the investment.
However, when someone invests in binary options trading, they are only placing a wager on an underlying asset’s direction. In this case, they aren’t buying ownership of tangible assets. So, though we use the term ‘investment’, the trader isn’t actually purchasing anything.
You Sacrifice Liquidity
When an investment is liquid, it means that it can either be bought or sold. At any point of an investment, the investor can choose to sell or buy. The traditional market offers individuals flexibility.
If an investor sees that their stock is going down, they can sell. If they see that a particular stock is going up, they can buy. Binary options are not a liquid investment. The trader is at the mercy of a time clock and must wait until options expire before they are able to take their losses or profit.
Not everyone is aware of all the risks and challenges binary options trading presents. As it has been previously illustrated, a binary option trading is not all it is cracked up to be.
It involves markets that can fail without a moment’s notice; it puts a cap on how much you are able to gain; its precise measurements can be the difference between wealth and poverty; its investors only purchase wagers not assets and investors don’t have ability to bail out of bad investments.
When investing money into binary options, you must first have a deep understanding of the fine print.