Binary options are an increasingly popular way of investing funds on the stock exchange. Derivatives have always attracted a greater interest because you can get them at a higher rate of return than securities. A lot of myths about binary options are circulating on the Internet, so we will try to refute the frequently repeated ones.
Myth 1: Binary options is gambling
It is a quite common opinion with quite strongly rooted foundations, but the financiers have not yet worked out a consensus on the subject. Binary options were approved for exchange trading on the territory of European Union on May 3rd 2012, but not in every country of the Union. In Great Britain, for example, they are regulated by the Gambling Commission. This happens because the binary options have a specific structure and way of earning an option premium. Binary options are also called “all or nothing options” because one either gains all or loses everything. That is why some market players think that a little bit of luck is enough to gain a high return on investment. It is a quite wrong perception because if I want to make a profit on binary options it is necessary to have a knowledge about a particular assets market.
Myth 2: Binary options are not profitable
Such an opinion is spread by traders who lost their invested capital. Most often this is due to them making random bets. In this way, you can obtain a return on investment only for a very short time. If, however, the intention is to make money in the long run, a suitable investment plan is needed. Experienced market players assume what return they are planning to get in a specific real time frame. Typically, they do not expect the effectiveness to be greater than that of 60 percent, because this value is sufficient for satisfactory profits. Before starting investment it is also necessary to identify the trading floor on which one will operate on. For that the fundamental and technical analyses are used. In the first case, check whether the price level of an asset is underestimated or not, on this basis bet positions of options. In contrast, technical analysis is carried out when the price of assets is at the right level and then it is expected to change based on market trends. It often works best to use both analyses. Also, there should be an appropriate strategy compiled for a given financial instrument. Binary options change differently on the stock market and the dynamics on forex binary options is different too. Binary options are profitable but instead of random trading an appropriate strategy and knowledge of the market, where the investment is made, are necessary.
Myth 3:You get a big profit in a short time with binary options
Usually that is the myth which inexperienced stock market players fall for. Often, they put all the savings in one binary options market and tend to lose them. In economics, there is no such thing as a big and fast return on investment. You should have realistic expectations about the rate of return on equity. As we mentioned before, you need to make an investment plan based on actual data. It is true that in binary options trading you can get up to 80 percent return, but not at the first time. Diversification of equity portfolio is needed which means trading on several markets. The most popular is forex binary options, because the currency markets in recent times are quite stable and it is easy to obtain an in the money option. Optimism is not a good advisor when investing, that’s what the novice market players should get rid off.
Myth 4: Investing in binary options is easy
It can be said that half of that sentence is true. The technique of investment itself, that is the choice of options type, is quite easy. Usually these are call and put options (also known as high/low or up/down), touch/no touch options and boundary options. By trading call and put options it is predicted whether the level of prices of an asset will increase or decrease. Depending on whether the choice was correct, you can receive the option premium or lose the entire capital invested. In the case of touch/no touch option it is determined if the price level of a given asset will be in a particular spread. However, in boundary options the value of assets must exceed a set limit. It can be said that the trading itself is relatively easy and that’s why binary options are so popular with people who have never played the stock market. However, it is more difficult to make a profit on these derivatives, because they are characterized by high dynamics of change and require extensive knowledge of the markets and a specific set of skills.
Binary options are an instrument which is used by both laymen and stock market professionals. Trade strategies and the level of return on the capital invested is raising up a lot of controversy. It’s quite a new item in exchange trade and its market is not entirely settled. That’s why a lot of myths were formed about them, which are spread by unhappy market players.