If you are wondering if Binary Options trading is safe, I will cover this in this article.
Generally speaking, Binary Options are considered a safe trading strategy. However, just like with all financial instruments, you should do in-depth research and guarantee you are working with a legitimate Binary Options Broker.
Safe is a very subjective term when it comes to trading. Binary options come in many flavors, and a safe trade for one person might be extremely high-risk for someone else. Like any other asset, binary options have their advantages and limitations.
It would be best to consider several factors before investing your hard-earned money. To understand whether or not this is a safe investment, let's look at the different aspects of binary options trading.
Binary Options and Regulations
Online trading platforms are notorious for scams and fraud. You might even find trading platforms that go a step further and offer financial instruments that are outright illegal. One of the main concerns for new and advanced traders considering binary options is their legality.
Back in 2008, when binary options were new and not well-known, it was natural for people to be skeptical. However, since 2012, binary options have earned the title of a proper financial instrument. As such, they are recognized as legal tender if you buy the right type from the right broker through the right platform.
When trading any asset, it is important to know about its regulators. Binary options are regulated in the EU by:
- Cypress Securities and Exchange Commission (CySec)
- Financial Conduct Authority (FCA)
- Malta Financial Services Authority (MFSA)
Regulations vary by region; however, these are three of the most prominent and globally recognized authorities. If these EU-based regulators accredit an instrument, you can be sure it is legal. For example, we list the top brokers for binary options in the UK.
Before you set up your trading account, let's look at a few more important aspects of binary options that will help you understand how safe this financial instrument is.
Trading Mechanics
Binary trading is alluring for traders because of how straightforward it is to make a trade. As opposed to a regular buy-hold-sell strategy, with binary trading, you are simply answering a yes or no question.
Binary trading depends on an asset reaching (or not reaching) a certain price. When placing a trade for binary options, you are essentially placing your money against whether or not an asset will reach a certain price at a certain time in the future.
You aren't buying any assets, so you won't purchase the underlying asset. Yet you can place a trade against any asset that you like (gold, silver, forex, oil, etc.) and simply wait for it to reach the price that you have predicted.
If the asset reaches your predicted price, you get a profit. Otherwise, you get nothing.
This is why binary options trading is also known as asset-or-nothing trading.
Usually, binary options trading platforms will pay you a percentage of your investment as a profit for successfully forecasting an asset's price movements. If your forecast turns out to be incorrect, you get nothing.
This is the overall structure/process that binary trading follows, but there are also a few variations to this as well such as boundary binaries, up/down binaries, and touch/no touch binaries.
The setup is simple for people who want to trade binary options. You just need to find a broker, register and start trading. Again, each trading platform has its own nuances, but the overall idea is the same.
You also needn't be a market expert or a finance guru to get started with binary options. Unlike currency trading or buying shares, you don't need to know everything. Beginners can start with binary trading and gradually grow their portfolio as they learn more about the business and get better at trading.
Binary Options and Risk
Whatever kind of trading you choose to start with, there will always be an element of risk involved. There is no real way to eliminate risk from the business completely. However, you can do quite a bit to mitigate risk or at least improve the risk-to-profit ratio.
While binary options trading is a simple form of trading to get into, that doesn't mean it's low risk. In fact, depending on what kind of asset you are trading, it can be extremely high risk. For instance, if you are trading binary options for forex, it is just as risky as forex trading itself.
Some things make binary trading a little less risky (and potentially more profitable) than other forms of trading. One of these features is the lack of leverage.
This means that you are only trading with money in your bank account (or broker account), and you aren't using any additional leverage. Even if you incur a bad trade, you won't be liable for more money than you own.
Another feature that minimizes risk and losses in binary options is the ability to trade very small amounts. Different binary options brokers do have different minimum trade sizes, but it is not uncommon for brokers to allow you to trade with as little as $1.
Also, with binary trades, there is a fixed monetary outcome that you expect. Since you are trading against a certain price, you already have an excellent idea of how much you can expect to make or lose.
The idea, of course, is not to generate losing trades, but if things don't work out in your favor, you will already know, well in advance, how much you could potentially lose.
Some top-tier brokers will even give customers some level of protection against bad trades against certain trade sizes. With this safety net, you won't lose 100% of your deposited money, and you might be able to get 5%-20% back even after a bad trade.
Binary Options and Returns
Binary options trading is high-earning trade. It is not uncommon for traders to earn 60%-90% of their investment.
Binary Options is a fast-moving market, and you can earn excellent returns on very short notice as opposed to other forms of trading, where it could take months to earn a good return. In binary trading, it is not uncommon for contracts to last a few minutes or even seconds. While longer-term contracts typically last a few days or a week.
A good binary options broker will also have a quick payout structure, ensuring customers get money in their bank accounts as soon as possible. Some brokers credit customer accounts instantly after a successful trade.
Another feature that makes binary options trading so profitable is the diverse exposure that you get. With such a diverse portfolio, you can invest in a wide array of assets that earn higher returns. However, this also increases the chances of binary options fraud, so you must be wary of who you work with and ensure that you invest in real and legal binary options.
Picking a Safe Binary Options Broker
Choosing a reliable binary options broker significantly minimizes risk and ensures you earn the best returns on your trades. When choosing a broker, you want to look out for a few things.
Licensing and Regulation – The most important thing is to find a licensed broker registered with the right exchange commission and legislative body in your region. A non-licensed broker might offer more attractive rates and trading profits, but you can't be certain that your money will be safe with a reputable business.
Software – You will be trading digitally through an online account, so you need an interface that is easy to use, secure, has all the features you need and is reliable. Ideally, you want a broker that offers access to the trading software through the web and also has an app.
Demo Account – If you are new or just trying out a broker for the first time, it helps to use a demo account. This way, you don't have to risk any real money. You still get an excellent idea of what real trading through this broker will be like. If you are a new trader, you will also have time to familiarize yourself with the online trading process; if it is something you want to pursue, you can always use real money.
Support – You definitely want 24/7 support. Ideally, you will want support in as many forms as possible. However, having reliable support that you can always get in touch with is a good feature to have.
Conclusion
Trading binary options is safe if you take the necessary precautions and understand the process before investing your money. Making sure you are working with the right binary options brokers. Always making calculated trades is the best way to protect yourself against fraud, scams, fake instruments, and overall monetary losses.
Researching and working with well-known binary options brokers will always be in your best interest, even if they cost a bit more.
Remember, trading in any form is a risk, and you should be prepared to lose any or all of the money you are initially staking.
However, carefully researching your options before getting started will minimize any losses and improve your chances of making a profit.
