Investing your money in binary options can be a very costly mistake, and I recommend that you stay far away from all types of binary options unless you are a very experienced trade who is using them as a part of a hedging strategy.
What are binary options?
Let us start by taking a look at what a binary option is. A binary option is a financial instrument offered by a binary options broker. The broker is the option underwriter, and there is no third party involved in the transaction. If you buy a binary option then it is a transaction between you and the broker.
A binary option is based on an underlying asset such as a stock, a commodity or a currency pair. The market value of the underlying asset governs the binary option. The most common type of binary options is put and call binary options. A put option will reward you with a profit, mature in the money if the value of the underlying assets is above a particular value at the time of maturation. A call option will reward you if it is below a particular value. If the option matures in the money then the owner make a large profit. If it matures outside the money, the option is worthless.
Few traders make money
All binary options are designed to earn the broker money. The odds always favor the broker, and a large percentage of all options matures outside the money. It is possible to earn money trading these options but most traders who try trading binary options end up losing money. The entire business model depends on traders losing more money then they earn.
How large percentage of all traders that end up losing money varies slightly between different brokers. Between 10 – 30 % of all traders earn money trading binary options. Between 70-90% lose money.
The industry contains several brokers who manipulate the results to make sure that none of their clients make money. Some brokers have also been known to deny withdrawal or otherwise steal their client’s money. If you trade with one of these brokers, you have a 0% chance of making any money. You are guaranteed to lose the money you deposit to your account.
If you think you will be able to beat the odds and become one of the 10-30% of traders, who make money you need to make sure to register with a broker that provides fair trade. A broker that gives you a chance to make money. The best way to do this is by visiting a website where you can compare binary options brokers.
Why you should avoid binary options
We have already touched on many of the reasons why you should not invest in binary options above. Below we are going to list those and other reasons to avoid binary options.
- Some brokers are scams
- All binary options are designed to make the broker money. The odds are often in favor of them maturing outside the money.
- Options that matures in the money return less than a 100% profit. Making it hard to make money even if the options have a 50% chance of maturing in the money.
- They can not be sold. The money is tied up until the option matures.
- 70-90% of all traders lose money.
- They are banned in the EU and Canada
- They are marketed using misleading marketing that makes it seem easy to make money.
- The risk-reward ratio is wrong.
Binary options are heavily marketed towards retails investors who are looking for a way to make big money on the stock market. Investors who are looking for the “secret” that allow the Wall Street insiders to make a lot of money. Binary options are not that secret. Binary options is a way to earn money from greedy, gullible traders who allow their greed to overshadow their common sense. Do not fall for the advertising and avoid binary options altogether. There are better ways to earn money.