By Staff
Foreign exchange traders are often on the hunt for a set of strategies that will help them accelerate their investments and get them to profitability as quickly as they can. And over the years the financial services industry has responded with a variety of choices – and one of these has been “binary options.”
Binary options allow the trader to make a snap speculative decision between two potential fluctuations in the value of an asset. For that reason, they’re often described as simple and easy forex trading options. But binary options have largely been discredited and they should always be approached with caution. This article will delve into these questions and look at if or how they can be used by traders.
What Are Binary Options?
The term “binary options” refers to a set of financial instruments that push the trader to speculate in one specified direction or another. A forex binary options trader might be asked, for example, whether they believe the British pound will rise or fall in value: selecting the “correct” option will see the trader make a fixed profit, while the “incorrect” option will make a loss.
Be Aware Of The Risk
But binary options are risky. By distilling the entire speculation process into one set of “simple” decisions, traders are not able to take advantage of nuanced strategies. Instead, they are faced with an all or nothing situation. They can’t set stop losses to recoup some losses, for example, and they have to rely on big “wins.” If the wins don’t come through, a trader’s whole deposit could be wiped out.
And some evidence of serious fraud among providers has emerged in previous years. In one such case, a firm in Israel – Digital Platinum, Ltd – was accused of a scam worth 20 million US dollars. According to the allegations, senior figures at the firm spent time over the course of five years or so issuing promotional materials which were filled with misinformation about the high levels of returns. American regulators, however, decided to pursue the firm on alleged fraud grounds. While this, of course, does not mean that all binary options brokers are fraudsters, it does illustrate some of the problems that those operating in this asset class space might face.
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Learn How They Work
If you do decide to go ahead with binary options, it’s vital to have a full understanding of the risks involved and the fact that the method has been largely discredited as a foreign exchange strategy. But it is, of course, up to each individual trader which strategy they pursue. If binary options appear to a trader to be a good move, the next step is to understand how binary options brokers operate.
Forex trading education from a site such as Forex Traders will help in that regard, while it’s also worth reading some reviews of brokers to see what other traders think about their experiences in the binary options market. It may also make sense to watch videos on sites like YouTube from unbiased information providers, or to read up on advice from regulators in your jurisdiction to find out more trustworthy information.
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Read Up On Strategies
While binary options have been discredited in some circles, there are some strategies available for those who want to engage in this mode of trading. And it’s also the case that some people have had success in making profits in this way – although how much that’s down to luck is another question. Traders who wish to learn a bit more about the strategies on offer need to do some thorough research.
Prepare To Walk Away
The simplicity of binary options means that they can often end up appearing extra alluring as an easy, quick way to make forex profits. Given that “trading” under this system is as easy as saying “yes” or “no”, the excitement – and even addiction – can quickly build up. For that reason, a forex trader using a binary options strategy ought to be ready to walk away if they find that their trading behaviours are becoming unhealthy.
Ultimately, binary options have been described by many in the financial sector as either overly risky or a scam. It’s not always the case that traders lose money when using binary options, but it definitely pays off to do some research and go through some forex trading education programmes before deciding for sure whether these are right for you.
Featured Image: Supplied by the author
Filed Under:
- Finance,
- Forex,
- Investment,
- Making Money,
- Trading
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