Binary options trading has emerged as a leading industry in speculating on increases and decreases in the value of shares. Like its traditional counterpart, binary options traders can identify company shares and make long (upward) and short (downward) calls on future price movements. Unlike traditional stock trading, however, there is no actual transaction of equity and a binary options trader will never actually own any stake in the company during the lifetime of the options. Whilst this may seem detrimental to longer term value investors, it provides the short term benefit of a fast derivative market where binary options in a company may only be held for a matter of hours, or even seconds, before the position is closed.
Binary options favour short term traders
Binary options work on the basis of a simple, higher or lower call, with traders speculating if an option will expire above or below the current price when a deadline is reached. This type of speculation does not necessarily favour a long-term perspective on a stock’s performance and many binary options brokers provide expiry times for these options as low as 60 seconds. The benefit for this form of short-term trading, even against day traders of stocks, is that whilst the expiry times may vary, the levels of profit and the required capital to purchase the options remains the same. Stock traders typically have to increase their capital and leverage their positions heavily in order to ensure that tiny price movements generate profits. Binary options traders, however, will generally receive 75-85% profit on all ‘in the money’ options regardless of the amount of time they are held.
Binary options can be profitable in both volatile and flat markets
As stock traders are all too aware, the volatility of the market in their favour is the most important variable in generating short-term profits. Binary options, however, have the added advantage of simply requiring price to move fractionally higher or lower than the purchase price in order to provide a fully profitable return. Without actually owning the stocks, binary options also provide interesting markets derived from the underlying share price. This allows traders to utilise tools and facilities such as ‘One Touch’ and ‘range’ trading where options are purchased on bets of how far price may, or may not, move during a period of time. This allows for binary options trader to be equally profitable in both volatile and flat markets each of these features serving to allow for profitable opportunities to be found in both scenarios.
Binary options do not require a huge capital outlay
Although a significant number of traders day-trade stocks successfully, the necessity for a large account makes this a difficult form of daily speculation. Most retail stock traders will look to invest in a company’s performance over time, rather than buy and sell throughout the day. Binary options allow access to these markets for a fraction of the cost and also with high returns on all investments. Many binary options traders when given the choice of binary options and stocks will choose binary options because they provide profits of up to 80%. Finding this level of return on a single stock portfolio may take several years as opposed to several minutes.
