Times are hard and everyone is looking for a way to make money quickly. Some people have invested in traditional instruments such as stocks while others have invested in more complex systems such as a binary options trading system to try to get wealthy really quick.
Binary options are new financial instruments which have been in existence for a couple of years. These instruments are short-term investments with the potential to have high profit returns. Just like traditional investment options, binary options rely on the movement of stocks, indices, foreign exchange, crude oil and gold, among other things.
However, when investing in binary options, you will not be investing in the traditional sense but betting on the outcome of some prediction. Although binary options may seem like reputable and respectable investment instruments, they are very risky.
These financial instruments give you an opportunity to make some fast money because they provide a profit return of 80-100%. However, they also provide you an opportunity to lose money fast!
Binary options are based on the principle of ‘low cost, big profit returns’. This is the same principle used in gambling and thus binary options can be considered as a type of gambling. Binary options work in a simple way: You are required to login to your broker’s website and place a trade.
Placing a trade means you must invest a certain sum of money so that you can be allowed to make a prediction on the movement of financial assets. If your prediction is correct, you make a profit from your investment. If the prediction is incorrect, you lose all the money you have put at stake.
3 Reasons Why a Binary Options Trading Strategy is Risky:
Binary options are risky for several reasons. These types of investments trade for a period of 15 minutes to 1 hour upon which they expire. Unfortunately, it is very easy to invest in binary options because you don’t need any investment knowledge to get into the game.
As a result, most financial institutions have avoided these instruments because they hold a closer resemblance to gambling than to sound traditional trading or investing. There are several features that make binary options a risky investment option. These include:
1. Addiction:
Addiction takes place when an activity provides a lot of stimulation. Just like other forms of gambling, the trading of binary options are addictive since they force a trader to become psychologically or physically dependent on them. Binary options are considered addictive because a trader will always place trades despite the fact that they are constantly losing or the trading activity has a negative effect on their life.
The promise of high gains and low risks in binary trading makes it easy for traders to get addicted. In time, things spiral out of control when the financial status of the trader deteriorates. A sound investment instrument should not be addictive.
2. Inconsistency:
There is little, if any, predictability in a binary trading strategy. Although the profit returns are very appealing, there are very slim chances of winning a prediction. Trading in binary options is short-term and can last between 15 minutes and 1 hour.
For this reason, a trader has little time to predict how a stock or commodity will behave in that short period. People who invest in stocks have a lot of time to check the consistency of stocks and determine whether their value will increase in future.
Unlike in stock trading, binary trading is inconsistent because there is little time to predict specific values and trends. Unfortunately, many brokers and affiliate sites claim that it is very easy to make fast money through binary trading. If it is as easy as they claim, why aren’t binary options the latest trend in Wall Street and major security exchange markets?
3. Lack of Regulations:
In most countries around the world, the stock markets are regulated by one or more government agencies. These agencies are responsible for preventing fraud and abuse as well as ensuring that investors and traders have adequate information to assist them in making their investment decisions.
Websites that offer a binary options trading strategy are not regulated by any government agency. As such, the interests of traders are not safeguarded by any government agency. This makes binary trading a risk since brokers can take advantage of traders or investors.
Related: SEC warns against binary options brokers.
Investors and traders should realize that binary options are risky and unsound investment tools. Although they might not be an investment fraud, they don’t have the potential to make good returns in the long-term.
Websites offering binary trading are not regulated by the government and this exposes you to fraud and unfairness. In a nutshell, binary trading is a form of gambling rather than a sound investment option. In general you’d probably be better off sticking to basic personal finance strategies that have years of proven success and benefit.
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Binary Options may be risky but you do have the ability to limit your risk. For one your risk and reward are predetermined for each transaction. Also, it possible to find platforms that will allow you to stake as little as $1 on a single contract.
In every field there is risk without risk you can’t servive in market.