Pros and cons of binary options
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Thread: Pros and cons of binary options

  1. #1
    Super Moderator Gulfstream's Avatar
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    Pros and cons of binary options

    In this article I would like to learn more about instruments, which recently became available for RoboForex clients under the "options" project company RoboOption - binary options. Because many traders have questions regarding binary options, I propose to consider them more in details. What are the advantages of binary options over the traditional trading?

    At-first, it is very important to note that the universal instrument does not exist, both binary options and classical forex trading have their pros and cons. Each trader can choose the instrument depending of his strategy, for some strategies more appropriate will be traditional trade (for example - classical trend system), for another (for example - trade near the support/resistance levels) – will be an advantage to trade on binary options.

    What is binary option?

    Binary option gives an opportunity to make a bid for an uncertain event or scenario, while knowing the parameters of risk and profit.
    Let’s consider on the example of the simplest form of binary options – “call” & “put”.

    Let's say you expect that in the next three minutes, the price of the chosen instrument, for example, EURUSD, will be higher than the current for at least 1 point, you will get fixed profit. This type of option is “call” (do not confuse with classical option “call”, the have another parameters).

    If you predict, that the price will go down in exact date in future ( for example – after one week or more), and the price will be lower than current, in this case you can buy option “put”.

    Some people think that binary options have been invented recently, and they have no analogues on market. However, even on Chicago Stock Exchange binary options are traded on Index S&P500 and volatility indicator VIX. Different structured products, allowing to get the profit from “the tangency” of corridors’ boundaries and other sceneries, existed on the OTC market long ago, but were available only for institutional bank clients till the recent time.

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    Super Moderator Gulfstream's Avatar
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    Life cycle of the binary option.

    Every binary option has its own life cycle (time circulation). For example, active trading options can have very short-term cycles for 60,120 or 180 seconds. Long-term options can live more than 1 week – the date of options’ expiry is chosen just before the opening of the deal.

    Profit and payment.

    The result of the deal is made directly, when the option expires. If traders’ expectations realized, he makes the profit on formula “payment – bonuses”. The prize for opening the deal is taken independently from what the scenery was realized in the particular deal. Payout 70% will mean, that with the amount of the investment in a single deal of 100 USD, your profit will be 70 USD (you make the profit of 170 dollars and pay the prize of 100 USD, as a result, you receive 70 USD in the case of your predictions’ success), your loss is limited with 100 dollars.

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  3. #3
    Super Moderator Gulfstream's Avatar
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    Pros and cons of binary options

    Briefly list the pros and cons of binary options:


    Whereas payments for options is limited earlier, it is impossible to “let the profit grow” while trading on binary options, that means unviability of use classical trend system, when the lion's share of profit is calculated on a small number of orders. Of course, take into account the direction of the dominant trend in trading binary options is not only possible but also necessary, however, the trading account the growth will occur in several other principles.

    Trading in binary options, it is important to be right in most of their deals (more than 70% of deals), right to understand the short-term direction of the market and its dominant force. Many traders are able to develop a good market feel, it can often build realistic forecasts and expectations, but to make money on them, selling the traditional way, they cannot - while the majority of their forecasts is realized, unexpected price "emissions" sharp movements on the news "studs" and other features of the forex market negate or substantially reduce their advantage.

    On the market of binary options there is no "stop", by definition, and that’s why trader is free of situation when after the stop out takes place the price will go up under his expectation. Market of binary options–the market expectations. Only those whose expectations are often realistic can make a profit, not those who can fast turn position in right moment.

    The presence of clearly understood rules of the game – and earlier defined risks parameter and profit, relieve all psychological stress from trader, he doesn’t need to ask himself a question about the correctness of “stop”, he can focus on the quality of his forecast. That is why binary options so rapidly gaining popularity among traders.

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    Trader Azis Muslim's Avatar
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    I admit it is very hard to work with binary option. Pro: I like the payment system that use some percentage per bet traded. Cons: But since I am a swing trader, I can not trade using smaller time frame in binary option such as 30 minutes or less. I know there are more higher time frame like hourly, 4hour, or even 24 hour. But for me, I would rather trade in forex trading with such long term rather than binary option because I can get more profits in long term when I use traditional trading with mt4 rather than binary.

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  5. #5
    Trader Senorita's Avatar
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    If you compare binary option with forex business you will get to make good list of the pros and cons of trading it. Binary looks easier than forex and its one a newbie could easily understand. In its words it all about call and put. We can say a market can rise with a set time and if it's right we make profits. But one disadvantage about binary that makes it hard for me to consider it sometimes is the fact that you are limited to make profit or loss in a time frame. Unlike forex where you could still make profits even when the market start going against you initially without having a time set on your behalf.

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