Binary Options – Some Red Flags

Written by Saul Griffith

You read in the previous article about the many pros of trading binary options. In this article we’ll discuss some of the cons.

The odds are stacked against you

Disadvantages of binary options

The usual binary options website will go to town about the huge returns that you stand to make by trading binary options with them. Well, high returns are certainly possible, but the catch is that you must have a high number of winning trades, i.e. a solid win ratio to counterbalance the inevitable losing trades that you will incur. 
 
The win ratio will depend on the terms your binary broker offers on winning and losing trades. What kind of profit return do you make on a win, and do you lose all of your upfront payment when your trade turns up a lemon? Some brokers ease the pain of a losing trade by giving small cash back percentage. 
 
But, for instance, if the broker paid you 70% on a winning trade and nothing at all on a losing one, it can be easily calculated that you would need to win 58.82% of all your trades…just to break even.
So there’s the fine print! 

Limited trading tools

A typical binary trading platform would be lacking some of the advanced charting and technical analysis features seen on a forex-trading site. Yet, these tools could make all the difference in your trading profitability, even at the cost of somewhat complicating your trading.

Hard-to-find Demo options

Free Demo trading platforms that provide you paper money as trading capital are available a dime a dozen among forex brokers. But tried finding a demo platform for practice trading of binaries? These are rare and in most cases, would not be available until you opened, and funded, a real account. That puts newbies at a disadvantage because demo trading is essential to grasp the intricacies of the business.

Limited regulation

Many binary option brokers are not regulated and therefore the risk of the broker just packing up and vanishing with your deposit cannot be ruled out. 

Criticism – binaries are just a crapshoot

Many critics say binary options are no “financial derivative instrument,” and instead are just a modified form of gambling (crapshoot). They might not be far from the truth, yet successful traders manage to rack up an impressive win record through their study of the markets, technical and fundamental analysis, and trading discipline. So can you. 

Conclusion

To conclude, keep both pros and cons of binaries in mind, but do give this exciting new instrument a chance to work for you.

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