There are many reasons why a trader would chose to trade with binary options. These online digital contracts provide many unique advantages when compared to many traditional trading methods, such as investment through a Forex broker or via a Stock dealer.
The key benefit to trading with binary options is of course that it is simple. The concept behind the ‘all or nothing’ contract is easy to get to grips with even for new traders. What is more, there are few barriers to entry.
Even ‘newbies’ with little or no prior trading experience can quickly get themselves up and running.
Below we take a look at some of the key advantages that this method of financial trading offers.
Simple And Understandable
The whole concept behind the digital Binary Options contract is that it is simple to understand. Essentially you only have to forecast as to whether you think the price of an asset will rise or fall over the contracts lifespan. If at the point of expiry you have made a correct prediction then you win. Simple.
The ‘binary’ nature of the contracts means there can only ever be two outcomes at the point of expiry. These are referred to as ending ‘in the money’ or ‘out of the money’. This makes for easily understandable trading.
You don’t need to work out how far the asset price will move; only whether it will end up or down. This is one of the key differences between binary options versus CFD trading.
The return that you are offered by a broker for a contract is fixed. A typical binary contract will payout around 70-90% for a successful expiry. You earn this return on your investment provided that the contract ends ‘in the money.’
For a contract to finish in-the-money you simply need the conditions (higher or lower) to be settled at the point of expiry; this can be by one market tick or one hundred ticks, it won’t affect the outcome. You still earn the same high fixed payout.
As well as offering a fixed return, a further key benefit comes in the form of fixed risk. The liability on each contract is limited to the contract’s initial value. This is the case no matter how far the price of an asset moves against you.
Furthermore many brokers also offer ‘Rebates’. These are a percentage payback of your original contract value. They are paid if your contract ends up ‘out of the money’. They range from 0-20% and can help to provide a useful cushion, particular for new traders finding their feet.
Low Barrier To Entry
Unlike many forms of trading you don’t need a large deposit to open a trading account with a binary options broker. You can open an account for just a few hundred dollars and trade small amounts of $10-20 on each contract.
Contacts are made directly between you and the broker so there are no fees associated with trading. Whether you trade a $10 or $1000 contract on the outcome, you are still entitled to receive the same fixed percentage return on your contract for an ‘in the money’ expiry.
Access Global Assets
You can access a range of financial markets from a binary options account. The binary trader can move between markets and diversify trading strategies to seize upon opportunities as they arise on different asset classes. This results in the potential for a lot of opportunities which can be taken on the account.
The most commonly traded assets are the major market Indices such as the Dow, NASDAQ and FTSE, Forex, commodities and Stocks. The trading conditions remain consistent across all assets with the same high profits offered no matter what asset is traded.
Easy To Get Started
Opening your account is easy. You won’t have to complete a lot of paperwork. All you need to is supply a few details to get your account up and running.
Once your account is live you can then credit it in a wide variety of methods including by Debit/Credit card or through the use of a third party payment processor such as Skrill (Moneybookers) or Paypal. You are then ready to start trading as soon as your funds have cleared.