As one of the most popular online financial products at the moment, binary options have capture the imagination of individuals the world over. They are marketed and used, as a product that can be used to generate high financial returns from the market quickly. The low costs associated with trading these contracts and the potential for fast profits has proved attractive with many people around the globe.
Binary Options are an ‘all or nothing’ investment. They work by paying out a fixed level or profit at an agreed expiry time, provided the trader is able to predict the price movement of an asset correctly. This is easier than with many alternative investment products as a successful ‘higher’ or ‘lower’ call is all that is needed when setting up the contract. If you forecast the direction that he price will move correctly then you will earn the stated profit. The concept is that simple.
A contact that expires for profit is known as being ‘in the money.’ If this is the result at the expiry time then the profit on the investment is credited immediate to the traders account. This can see a return of several times the original investment amount in some instances. More commonly a return of 70-85% can be made. This makes for a fast way to build big returns from binary options investing.
However while this may seem to offer a simple path to riches, there are a number of risks involved. While a winning contract may offer you a return of 70%, a losing contract will lose you 100% -i.e. all of your investment. It is this differential that means that you will need a strategy that will win more often than it loses. With some good testing a blueprint for trading, you can however create a strategy to set you up for success.
When assessing the risks of binary options it is however important to consider the fixed risk that is offered by the product. This does, to some extent, help to reduce the risks of trading with these contracts. The reason for this is that you can plan your money management strategy from the very beginning so that your account is never overly exposed. You know exactly what you stand to win or lose before you part with any money in your account. As a result you should never find your account unknowingly underwater.
Ultimately any investment that you make will have risks attached. However the risks that are of Binary Options are apparent from the outset. These upfront risks actually assist in making money management on your account much easier. You can balance and diversify your risks across both different assets and in line with the returns that you are offered by your broker. In short, binary options like any investment, can be as high or low risk as you want them to be.