It’s hard not to notice the new buzz in forex industry – binary options. It’s new, it’s exciting and it is profitable! What is binary option trading and how is it different from the conventional trading concept?
Forex Trading VS Binary Option
Instead of purchasing and selling the currency itself, binary option trader has to speculate on which direction the currency pair will move to. When you purchase binary option, a contract is made which gives the buyer (aka you) the right to buy an underlying asset at a fixed price, within a specified time frame with binary option broker (aka seller).
This kind of trading is called binary because there are just two possible outcomes known to investor - it is either yes or no, 0 or 1, win or lose.
While in forex trading each position may bring surprising turns and unexpected gains, in binary option both risk and reward is pre-defined. Therefore, binary option is less risky because the potential loss is limited to the amount of money committed to each trade, while in forex trading, due to leverage, you can end up clearing your whole account with one wrong decision.
Is it Gambling?
Due to the nature of this type of investment, you might ask yourself whether binary option is gambling. It’s true that traders forecast whether the price will rise or fall within the selected period of time, however the professional trader will still make the decisions based on technical and fundamental analysis. Therefore, while it seems like gambling at first glance, it is hardly a game of roulette where there is no possible way to predict the outcome.
Advantages Binary Options
1.It is Simple
Since the speculation options are limited to up or down, you don’t have to break your head with all the possible outcomes and fluctuations of the market. Following the news and documenting how the market reacts to latest economic data releases, is good enough to figure out the direction of the assets.
As mentioned above, you are in full control of how much money to put at risk. Before you start trading, you know exactly how much will the profit be, or how much will the wrong decision clear up from your wallet.
Since you only have to focus on the direction and not on the volatility of the whole market in the long run, large profits can be made even with small trading amount.
4.Everyone Can Trade
You don’t have to be a mastermind to trade binary options – the doors are open to both professional traders and complete newbies. There are no restrictions and most brokers allow you to start trading with just $25!