Facts and Myths About Binary Options Trading

There are many facts and myths about binary options trading, the truth however is more realistic and in line with the standards of the modern financial and insurance industry. Binary options trading is a serious, regulated and well balanced financial activity, one that goes far beyond the zero-sum game of traditional brokers and bookmakers. Therefore any notion of gambling has no real meaning in this industry, gambling implies a small market place, with one investor betting against another, but in the financial industry this is not the case. Trades are bought and sold on the open market, but when you make a trade the system doesn't wait for a single trader on the opposite side of the market to take your trade, rather it is the market collectively that you sell to and you buy from.

Here are some very common misconceptions and truths about binary options:

 

Binary Options lose much of their value fast

FACT: Yes it is true, the element of time decay causes binary options to drop fast in value as expiry approaches, since the probability of the option ending up in the money diminishes fast. But this is only statistical probability, a binary option can perfectly well lose 90% of its value near expiry time, and still recover and end up in the money on the final seconds. Hence making it extremely profitable to the knowledgeable trader who steps in, and buys such an option with extremely high payout, and they finally win big money as the option ends up in the money.

Binary Options are Risky

FACT: Binary options are indeed risky and can cause you to lose your entire investment, we can't argue that they are not risky. But the risk is predetermined and much more limited than leveraged products, such as futures or spot currency trading, where losses go on and on, and you can lose much more than your initial investment. So binary options are absolutely risky but much less risky than all other kinds of trading.

Binary Options are less profitable than Spot Trading

Myth! Binary options offer anything from 60% to over 1000% payouts, giving you the ability to profit even from small market moves, while risking a fixed amount of money. On the spot market you have to risk as much as you expect to win, almost always! It has been found in actual trading tests, that knowledgeable traders can turn $500 into $5000 over the course of several weeks using one touch type binary options! This can NEVER be made possible, under any circumstances on the spot market. No matter how well you can predict the market, trading the spot price can never allow you to increase your account balance tenfold in just over a month, not even in a year!

Short term binary options are also more profitable than the spot market because they allow you to risk much less money, limit losses by closing trades early, and by focusing on the binary pricing structure that yields around 80-90%, on most short term Call and Put binary options. It has been found that spot market forex traders, tend to fail in less than 6 months. Due to being severely undercapitalized they tend to blow their accounts in less than 6 months, even when they can predict markets correctly, simply by not being able to meet their margin calls. The same traders using binary options do stand a significantly better chance of winning.

Binary Option brokers trade against their clients

Myth! All reputable binary option brokers are able to facilitate large enough trading activity so that they create what is to them a risk-less profitable trading. All they have to do is make sure liquidity is right, and generally there's a balance between buyers and sellers in the various markets. They have absolutely no reason to dislike winners, they want to have winners, and it makes no difference to their bottom line whether a single client wins big or loses big, because they are fully protected. When you win $5000 on a binary trade, your broker has automatically won a slightly larger amount, which comes from someone's losing trade out there. That losing trade can be either another client, or a client from another broker, or simply an opposing collective trading action in the open market, spread all over the globe, that is $5000+ of money in the form of pennies and cents from tiny transactions all over the world.

On top of that, binary brokers also make money from service fees, and interest on deposited funds. Above all however it is that difference between payout and the premiums collected, similar to how spot brokers operate by having a spread between the buying and selling price. There's no reason for them to trade against their clients, it doesn't make any sense to, and even if they wanted to it's impossible. Most of the time they have exactly 50 buyers and 50 sellers, on any one market, that is in terms of contract size not number of traders, if they wanted to trade against the buyers they would also have to trade against the sellers, which is impossible and meaningless. The system offers them a decent, almost zero risk profitability at all times, the way it is now. They don't look for ways to cheat their clients and their regulators also don't allow any kind of conflict of interests to take place against their clients. Many people blame the binary options industry due to their inability to understand how it works.

Trading is manipulated by Lockout Time

Fact: There's no manipulation, it used to be company policy, and still is with many brokers that they impose this lockout period and they do so because of the pricing model they use. Other brokers have reduced lockout period, or have no lockout period at all, because they have priced their risk differently in their models, but this makes no big difference to the winning trader anyway. It only makes a difference to losing trades because it can prevent the trader from getting out fast, at a reduced loss. But remember the broker doesn't look at you individually, or whether you win or lose, your broker looks at collective data and parameters and that's why some of them have lockout period. But you can bypass this issue altogether simply by choosing longer term binary options. People that were unable to get out of their losing trades as the market turned against them, are victims of their own decisions, they could have chosen longer expiry times provided by their brokers.

Conclusion

Binary options trading is serious and big business for large, liquid and regulated brokers. The system is profitable already for these brokers as it is, and therefore there's no need for unethical manipulation practices or efforts to mislead clients. Markets are simply risky, and people fail to understand market risk, instead blame their failures on all kinds of things, but when people win or lose money it is because of this market risk. On the other hand, people tend to forget about market risk when they win big. There are always winners and losers in the financial markets, and usually winners believe the game is fair and impartial and most losers believe it's a rigged game.

In the financial world, many investors trade on their own decisions. They decide which stock or currency to invest in, and their broker simply facilitates this trading. New traders always tend to go for high frequency trading, which is inherently harder to win at than longer term trading; they lose their money because of their own trading decisions, and then blame the industry for all kinds of things. Again it is obvious that most traders don't understand market risk! You can do better than them simply by recognizing how risky and how profitable markets can be. Remember risk and opportunity go hand in hand! You take risk, you know you can lose, but you know you can also win big, and in particular in the binary options market where you can start trading with a small account, and without blowing it in few months on margin calls. The binary option industry has done a great job and continues to move in the right direction.

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