Binary options are very compelling, especially to beginners since they promise high profit possibilities and besides, they are also easy to understand. However, the principle law of financial markets reads that high profit possibilities are associated with high risks of loss. Anyone who wants to make profits with binary options must be fully aware of the risk he is taking, under the circumstance that he loses his complete initial input.
Binary Options Pros and Cons
In order not to let his depot drift into financial ruins, it is therefore inevitable to highly speculative financial vehicles such as binary options that potential investors deal extensively with the principles of money and risk managements.
Binary Options Pros
Despite the high risks that binary options contain, they also provide several advantages:
Already before entering a position, it is clarified under which circumstances a profit and a loss is possible. In addition, the maximum profit and loss potential is already known beforehand, which is why a good money and risk management strategy can be implemented without any problems. The simplicity of binary options enables an intuitive trade and this is why no complex arithmetic is required in order to determine the fair value of an option.
Moreover, numerous brokers can be found on the internet, who offer trading with binary options which are not only guaranteed to supply the speculators with all big financial instruments, but they also guarantee the big competitions that the customers are provided with good and fair prices from the brokers. Besides, one requires no high entry capitals to trade with binary options so that particular positions can be established, since most brokers already enable an opening of an account with a beginning balance of a few hundred Euro.
On a final note, binary options are not traded on margin, which is why in the worst case of the complete initial input being lost –by way of comparison, with trade of currencies or futures it is common to establish its positions partly with borrowed money from the broker, which in the case of an unfavourable performance of a share, it can bring about that one loses more money than that deposited onto the broker account.
Binary Options Cons
The big disadvantages of binary options are that the trade is as easy as anything for you, that you are easily available and that the functionality of each layman can be understood – which is why especially beginners are dazzled with the high profit possibilities which can amount to 400 percent.
Even if, in the case of binary options, it is about elaborated financial products which have their eligibility, it is not allowed to withhold the fact that it is about highly speculative investment products which, in most cases, last for a relatively short period. To be able to achieve profits on a continuing basis it is inalienable, that the trader has valid prognosis models available and he must be able to remotely access profound knowledge within the range of money and risk management.
Yet now the easy access to the binary options leads to the fact that the most speculators trade straight on without a plan resulting in the loss of their complete capital within a few days or weeks. It is thus applied to highly speculative instruments like binary options, that those interested must know what they are doing so that they can use the advantages of these financial vehicles.