When you know what are binary options, you might ask why trade them? Because they offer several advantages over traditional trading in markets like forex, futures, commodities or stocks.
With binary options you don’t need to learn much to start trading. The theory behind binary options is very easy to understand. You just decide if the price will go up or down and you know that you will either make a specific profit or loss, you know all the numbers.
With binary options you don’t have to download and install any software. Brokers offer online platforms that are very easy to use. You just choose your asset and trade.
You can’t get stopped out
When trading options no price movement can get you out of your trade, because there are no stop losses. We all experienced situations when you enter the market, the price reverses, hits your stop loss and then reverses back your way and makes a big movement. In trading there is nothing more frustrating than seeing situations like these.
With binary options this can’t happen. The price can go as much as it wants against you, but if then it reverses back to your direction and makes a decent move, you will make a profit. In fact, the stop loss is built in the option. When you trade, you pay the price of the option. If you lose the trade, you won’t get anything in return, you lose the amount you paid and you cannot lose more. If you win, you get the price back plus your profit.
When you trade traditional markets, it is not easy to decide how to enter the market. If you use limit orders, the price will not always return to your level and your order won’t get executed. Then you will just watch the price and the profit running away while frustrated because you predicted the price movement correctly.
If you want to be sure to get in the market every time you place an order, you will use market orders. But it means that you will get slippage, which can mean a better price than you wanted, but much more often a worse price. This problem gets bigger with the size of your trades. When you trade several contracts/lots, slippage will get worse and can ruin your profits.
With binary options there are no problems of this kind. No matter the trade size, be it $5 or $10000, your order will be executed entirely and immediately at the exact price that was displayed when you clicked with your mouse.
Let’s look at an example. When you trade the e-mini Russell 2000, the tick value is $10. It means that if you have a 10 tick stop loss, you risk $100. If you are a good trader, you can get to 30, 40 or 50 contracts, which means that you will risk up to $5000 per trade. Try to trade 50 contracts and you will get slippage of several ticks, which will widen your stop loss and shorten your take profit.
On the other hand with binary options a $5000 trade or any other size will get executed immediately at the current price without any problems.
In traditional trading you have to maintain a certain amount of money in your account to be able to trade. In futures trading you will have to have in your account typically at least $500 to be able to execute intraday trades. If your balance gets under $500, you are done, you cannot trade anymore until you fund your account again. The same is valid for other markets, where the margins are even bigger.
With binary options you can trade your account to zero. You can have only $5 on your account and you will still be able to execute a trade. You can trade all your money without restrictions and you cannot get a margin call. The broker won’t close your position prematurely.
Continues in part 2 of Trading Binary Options Advantages.