prosconsAs enthusiastic as we are about trading binary options, we go to great lengths to give you a realistic, impartial view of it. It does no good to get amped up to trade only to lose that optimism when you experience your first loss. It’s important to have the right expectations from the beginning.

With that in mind, we’re going to cover some of the pros and cons of trading binary options below. For every reason to get into the market, there’s a potential downside to keep in mind. Knowing about them in advance will help you plan your trading strategy while staying in control of the typical new-trader jitters.

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Broker reviews Blacklist rating Trade now Early expiry Avg returns Min deposits Min trade Ratings Trade now
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Broker reviews Blacklist rating Trade now Early expiry Avg returns Min deposits Min trade Ratings Trade now
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Broker reviews Blacklist rating Trade now Early expiry Avg returns Min deposits Min trade Ratings Trade now
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Broker reviews Blacklist rating Trade now Early expiry Avg returns Min deposits Min trade Ratings Trade now
200% $50 $10
 
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Broker reviews Blacklist rating Trade now Early expiry Avg returns Min deposits Min trade Ratings Trade now
  200% $50 $10
 
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Broker reviews Blacklist rating Trade now Early expiry Avg returns Min deposits Min trade Ratings Trade now
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Broker reviews Blacklist rating Trade now Early expiry Avg returns Min deposits Min trade Ratings Trade now
95% $250 $1
 
85% $10 $1
 
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85% $50 $1
 

 

Pro: Binary Options Trading Is Simple

Trading conventional options is involved and complicated. Blind luck aside, you need to have your finger on the pulse of the asset you’re trading in order to profit. Depending on your market exposure, that could mean following currencies, bonds, swaps, and derivatives 24 hours a day.

In the movies, options traders are surrounded by computer monitors displaying complex, up-to-the-minute charts of their positions. They stare at their screens and make split-second decisions that can cost them hundreds of thousands of dollars. While Hollywood has been known to take creative license with their material, the way it portrays options trading isn’t far from the truth.

By contrast, trading binary options is drop-dead simple. Choose an asset, pick a contract, enter the amount you want to invest, and execute. The trade expires within minutes – or in the case of 60-second binary options, literally seconds.

Does it pay to do some quick analysis before executing trades? Sure, but your analysis will probably be limited to looking at candlestick charts and plotting pivot points. Both are easy once you get the hang of it.

Con: Few Binary Options Brokers Offer Trading Tools

You’re going to need access to a few tools if you hope to trade profitably. We already mentioned looking at candlestick charts. Here’s the bad news: very few brokers offer a charting service to their members. That means you’ll probably need to look elsewhere for one.

The good news is that charting software is easy to find online. Even better, some sites make it available to the public for free. Some are web-based; you’ll be able to plug in your data directly through your browser. For others you’ll need to download the software and use it locally.

You may also benefit from subscribing to a binary options signals service. They usually require a monthly fee, but if you commit to using them on a regular basis, you can make back the fee plus a healthy profit.

Pro: Low Risk Of Substantial Loss

Although there is considerable risk associated with trading binary options, the amount of money at risk is entirely in your control. The contracts you trade won’t pull your bankroll through the floor, generating margin calls and panic attacks. You’ll know your potential loss upfront because you’re the one who decides how much money to put into any given trade. Keep in mind that some brokers, such as TradeRush (click here for our TradeRush review), will let you place trades for as little as $5.

The main thing to remember is that you don’t have to risk thousands of dollars unless you want to. If you prefer, you can place trades for the same amount you’d pay for a large iced mocha at Starbucks. Of course it’s hard to make a living trading binary options when you’re placing $5 trades, but you at least have the option.

Con: Unbalanced Win-Loss Percentage Ratio

If you win, you’ll receive up to 90% of your original investment depending on the broker. That’s not bad. Assuming your trade expires in the money, you could literally almost double your investment in minutes.

But if you lose, you’ll typically lose 100% of your investment. That skews things in favor of the broker.

It’s worth noting that a lot of legitimate binary options brokers will give you a percentage of your money back on trades that expire out of the money. Also, some brokers will let you close out your position early and recoup some – though not all – of your investment. Having said that, it’s still a good idea to remember that for any given trade, your potential return (as a percentage) will be lower than your potential loss (again, as a percentage).

Pro: More Influence Over Financial Gains And Losses

When trading conventional options, the downside is potentially unlimited. If you’re long in an underlying asset and your trade moves against you, it could drag your entire portfolio down, causing a financial hemorrhage (just ask Bear Stearns). That’s why professional traders learn quickly how to hedge their bets. Hedging is like an insurance policy against an unplanned catastrophic financial event.

With binary options trading, you control how much you stand to win or lose on a trade. As we mentioned earlier, you choose how much money to risk whenever you place a trade. You know from the outset what your potential upside and downside is. Having that information makes it easier to plan other trades since you don’t have to worry about getting hit with unanticipated losses.

It’s still possible – and even advisable – to hedge your binary options trades. The key is that you don’t have to if you’re comfortable with the risk you’ve chosen. It a trade goes poorly, you might lose $50 (or whatever amount you invested), not your life savings.

Con: No Way To Practice Before Risking Your Money

If you trade traditional options, you can download software that will let you submit practice trades using real market data. That allows you to test your trading strategy without putting your cash at risk. Or if you’re tentative about making real-money trades, such software will help you gain confidence before you dive into the deep end of the pool.

While a few binary options brokers provide their members with no-risk demo accounts, most brokers have yet to catch up. They don’t give you a way to test your trading system or practice.

To be fair, this dynamic is changing. More traders than ever are expressing a desire for a platform that lets them improve their trading skills without jeopardizing their bankroll. TradeRush, 24Option, and a few other reputable binary options brokers have already risen to meet the need. More brokers are likely to join the pack in the near future or risk getting left behind by their more-responsive competitors.

Pro: Ease Of Market Entry

Here we’re referring to how much money you need to start trading binary options. The barrier to entry is remarkably low. Consider that trading conventional options requires at least a few thousand dollars. That’s usually the minimum most brokers will accept. They want to avoid getting caught in the middle if their customers get margin calls and refuse to fund their accounts.

There are no margin calls with binary options. There’s no need for them since, as we already noted, your potential loss is limited to the amount you choose to invest. That amount comes from your available bankroll.

The result? You can open an account for a fraction of the cash you’d need to open a regular options account. TradeRush, GoOptions, and Redwood Binary Options will open accounts for you with a deposit of only $200.

Here’s the bottom line: there are obviously great advantages to trading binary options. But there are also a few potential drawbacks. The most important thing is being aware of both so you’ll have realistic expectations when you trade. Your thoughts are going to have a bigger influence on your results that you might imagine. Ask any trader, and he’ll tell you how important mental fortitude is to profitable trading.

Remember, not only do you want to make money with binary options, but you also want to enjoy yourself along the way. Approach it with both eyes open, be ready to take a few hits, and keep honing your trading skills and refining your trading strategy. Incremental improvement while conservatively managing your risk will lead to bigger profits down the road.