One of the latest crazes to hit the binary options industry recently is the concept of the low minimum deposit broker. Always looking for more inventive ways in which to part the ‘punter’ from their money, it now seems that brokers are willing to offer you an account for lunch money.
There have been a number of accusations of scam tactics in the binary options industry over its short history. It seems that finally as the industry was starting to get itself sorted out it has now sort to undermine itself again.
Recent moves to broadly regulate the industry have, in many ways, acted as an overdue cleanup operation. It ceases to amaze me that an industry that was so clearly offering a financial product could avoid any form of regulation for so long. But then again, this did not help many of our financial institutions as we still feel the fallout from poor regulation of our global finical services industry.
Trading with binary options brokers has, to some extent, always been aimed at the lower end of the trading industry. It is designed to appeal to ‘low value’ traders who are tempted by the high advertised profits that are touted in the industry.
It is of course a legitimate way to trade on a wide range of financial assets (albeit stacked in the brokers favor). However this doesn’t stop brokers focusing on drawing in new clients on ‘a promise’ as opposed to its trading merits.
The latest low deposit trading accounts are provide an extension of their marketing to the ill informed. $50 and $100 accounts not only smack of desperation on the brokers behalf, but also worry me on other levels.
1) Preach Bad Money Management
One of my gripes with low deposit Binary Options brokers is that in using them, it instills poor money management skills in the trader from the outset. A $50 or $100 deposit might get you access to an account but you can’t properly balance and de-risk your strategy.
A $10 trade is at best going to be risking 10% of your capital or at worst $20. Hell, if you lose your first trade on a $50 account then your next trade is going to be risking 25%! Any experienced trader worth his salt will tell you that with such poor money management your account is going to hit zero quicker than a…
2) Can’t Afford The Loss
“People who are drawn to opening and depositing into these accounts tend to be precisely the people who really can’t afford to lose their money.”
This is perhaps an over generalization and it is not meant to be disrespectful. However many of the people who take up trading do so as they don’t have the amount of money that they want. In some instances this is not for luxuries, but merely to survive.
Anyone who is drawn to binary options because they think they can open an account for $50 walk away with a 90% return in minutes probably can’t afford to lose the $50. Yes you can trade with binary options and make money. However simply trying to gamble your way to profits is unlikely to get you very far.
3) Its Only The Start
Of course the key reason that there are so many low minimum deposit binary options brokers is that this is an attractive way to suck in new customers. They know that once you have lost your initial money you will soon be putting in more.
Maybe a $50 deposit looks so more attractive than a $200 deposit that their sign up rates increase that much more? Obviously it is all down to marketing. In truth, even a $200 account, while better, is still some way off from giving you an odds on chance of success.
So if opening an account with the minimum amount from a low deposit binary option broker is akin to setting fire to your money what is the best approach?
The best option is to wait until you can open your account with a respected and regulated broker using a decent sized deposit. Until you have sufficient funds to do this, spend time reading about and money management until you have a good understanding of it. Also take time to try out strategies on paper or trade in a demo account. In short, be productive and ensure understand the ways in which binary options work instead of trying to burn your money.
Then, and only then, start trading on your account and put into practice what you have learnt. At this point you will at least give yourself a decent chance of trading effectively.