A great way to make quick money is binary options trading. However, loss of money also happens in similar fashion. A downside to binary options is that even someone with little investment knowledge could place a trade and trade through this platform. Due to this fact, many financial professionals have shunned it as a form of gambling rather than trading or sound investing.
In finance binary option is “a type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money. The success of a binary option is thus based on a yes/no proposition, hence “binary”. A binary option automatically exercises, meaning the option holder does not have the choice to buy or sell the underlying asset.” – Investopedia
However, this does not mean that binary options trading is gambling; in fact, it is far from it but just like any other form of trading it does involve some risks. These are risks ETX Capital wants you to be wary of so that you can minimize your chances of loss and maximize your chances of profit. Let’s look at some of the risk involved in trading with binary options platform.
Market risk.
The trading of binary options involves market risk which is also true for any other form of investment as well. Without ample warning, markets often move in various directions. You may not know which direction the market will take even if you carry out the most thorough of analyses. However, there are ways to predict potential market movements.
Profit and loss determined by extremely precise points.
The slightest tick helps in measuring profit and loss in binary options trading something which does not happen with other investment vehicles. This means that as many as three or four decimal points often determine the value for this type of option. A trader could make a profit or loss with even with a difference of 0.0001 points.
Non liquid nature.
For an individual looking for a “liquid” type of investment, binary options trading may not be such an attractive proposition. Traders can only take their profits or losses after the options expiry date. You cannot exercise your will with Binary options platform.
Fixed profit amount.
Fixed profits are a major risk associated with binary options trading. This is something traders need to be aware of. With binary options trading, there is no unlimited upside potential as it has fixed profits and loss. However, the good thing about this is that there is a fixed loss.
No ownership of assets.
Traders do not invest in the ownership of any tangible asset with binary options platform as traders simply use it to predict the direction of an underlying asset. While some see this as a potential risk, others are comfortable with this type of investing.
If you use binary options platform as a gambling tool, you will expose yourself to a world of risks. However, you will feel confident to use your money, if you come up with a trading plan. A trading plan will help you to make money and limit your losses using the binary options platform. This is also something that ETX Capital suggests!
