Avoiding the Dangers of Binary Options

Binary options are a relatively new investment vehicle that was founded in the United States only a few years ago. Binary options are designed to be short term option contracts that have the potential to have big yields. Most brokers allow binary option trades for major indices, large blue chips and some commodities. Essentially, once you login to your binary option brokerage site and place a trade, that trade will have 15 minutes to an hour to expire “in-the-money” (price expires above the price your purchased for) and you could have a return of 80-100%. Binary options can be a great way to make some fast money but it can also be a great way to lose a lot of money fast. Unfortunately, binary options are so easy to trade that even someone with zero investment knowledge could place a trade and get into the game. This has lead many financial professions to shun binary options because they seem to hold a closer resemblance to gambling than to sound investing or trading. However, just because some people have chosen to use it as a gambling tool does not mean that they are useless and only a new casino game. In fact, they can be quite rewarding.

I have found that individuals with a sound trading plan tend to be better performers in binary options. If you already have an established way to trade, you can bring that expertise into the world of binary options and use your strategy to place trades. In the prior article on charts, we touched on the different time intervals of the charts. Since binary options are only 15 minutes to an hour long, we can use that respective chart to determine where the price could be heading in that timeframe. For example, say we are trading Coca-Cola and I have purchased 1 Call contract for $30 and the contract expires in an hour. I would pull up a 1 hour chart of Coca-Cola (KO) to determine what my indicators are showing me and in this case since I bought a call, there must be some bullish aspect to the chart. After 1 hour, the option expires at $30.30 and I get to keep the advertised return of 80-100%. Not bad for only an hour’s worth of trading!

Prof. Binary’s Trading Tip:

Binary Options are a profitable, fast and speculative investment opportunity. However, it is a fact that many people can’t control their emotions when it comes to trading and they tend to increase their risk to earn even more money. In my experience this is the beginning of their financial eclipse more often than not.

The key in successful trading is disciplined money management. In fact, as a rule, do not bet more than 2% of your trading capital every single trade.

Read this article for more useful tips to avoid binary options gambling.

The important topic that I really want to touch upon is the fact that traders could be sucked into greed and end up using binary options as a gambling tool. If gambling is your thing and you understand the risks, go for it but as a general rule avoid the use of binary options as a gambling tool. You will see how easy it is to potentially make money (and lose money) that you could end up taking bigger risks than you are accustomed to and in the end, you could be posting large losses. Do not let this be you! Come into binary options the same as you would with stocks, forex, options, etc and you will have a higher chance of success. Remember, it is always important to have a trading plan, as it will lead to higher probabilities of success.

The bottom line is that binary options could be used as a gambling tool but you are exposing yourself to a world of losses and pain. Close out of your brokerage and come up with a trading plan. Once you feel confident to use your own money, try again and I bet you will see the difference as you start making money and limiting your losses.