The Pros and Cons of Binary Options for Newbies

Making money via investment or speculation is never a sure thing. With the potential for large rewards, there come risks. Thankfully, there are a range of options, some of which offer better chances of success, lower risk, and, as a result, smaller profits. Binary trades are one such option that offers new investors a loss-limited way to begin Forex trading.

Options vs. Binary Options: What’s the Difference?

Options, sometimes called ‘vanilla’ options, are complex matters that have a pay-out (or loss) depending on the strike price of that option and the underlying cost of the asset. As such, these trades present the probability of huge losses as well as large profits. Binary options are less complex and are loss limited.

A binary option is a short-term, limited risk contract that clearly defines two possible outcomes. Firstly, there is the possibility that you will lose the money that you set out to initiate the trade. Secondly, there is the chance that you will gain a pay-out.

Binary options tend to range between $0 and $100, which means that the maximum profit is $100, minus whatever you lay out in order to set up that binary option. This limited risk and reward set-up is just one of the reasons that newbies should try binary options as a starting point.

The Pros and Cons of Binary Options

Of course, while binary options offer certain benefits, there are risks and downsides that investors should be aware of before contacting a broker to invest in binary options as a form of speculation. Only by fully understanding the risks and possible rewards can you be sure you are making the choice that is right for you.

Pros:

• Binary options are small budget accessible – You do not need a large initial investment amount to start trading. This sets binary options apart from many stock brokerages and Forex accounts that often have a minimum investment in the thousands.
• Binary options are versatile – Some brokers offer as many as 80 assets to choose from. This gives you choice in your speculation, despite the low entry fees.
• Returns are proportionally large – You can make a profit of 75% to 90% of your initial investment on one trade.
• Potential losses are limited – Unlike more traditional or complex investing options, binary options limit the potential losses to the amount fixed at outset.
• Binary options are simple to understand and easy to learn about – You can pick up the basics in five to ten minutes, leaving you free to consider your trading method.

Cons:

• Regulation is weak and spotty – Many binary option brokers remain unregulated. This is different from other types of trading (for example, traditional stock trading or Forex trading) and can leave you vulnerable to shady brokerages.
• Tight restrictions limit trade sizes – Binary options are great for those who want to start small, but if you’re looking at making big trades and deals, you will need to look elsewhere.
• The simplicity of binary options can cause complacency – While the basics are easy to learn, you still need to have an up-to-date knowledge base to be profitable in the long-term.