Binary options, like other investment instruments, carry certain inherent risks, and irrespective of the claims made by many binary options traders about its safety, you cannot reject these risks. Since you are speculating price movements, which are subject to market fundamentals and mood, it is always advisable to invest smaller amounts of money. This ensures that even in the event of a 100% loss, you do not desist from investing further.
Many traders who are regulated by the market regulator would want to ensure that you do not lose a large amount of money. To that extent, the traders have developed sophisticated software that capture various details of the asset or security in question, and give you detailed analysis for a safe investment. This is unlike gambling where everything is dependent on chance. A solid understanding of fundamentals with application of financial and market analytics can help you maximise results.
Therefore, binary options is not like gambling.
Role of Copy Trading
Copy trading, as the name suggests, facilitates financial traders in the binary options market to copy positions implemented and handled by a prominent investor.
In copy trading, traders copy the prominent investor’s strategies, and end up creating a portfolio that is a carbon copy of what the investor has in his portfolio. Whatever action the investor takes, the trader takes up the same action, which can include opening a position, or assigning a stop loss or a take profit order, or closing a position. The trader executes the same strategy on his portfolio that the prominent investor executes on the original portfolio.
As the copying trader, you can disconnect the copied trades and handle them yourself, without the original investor knowing what you’ve done. Such trading has led to the development of a new investment portfolio focusing on people, and it is called the people-based portfolios. Instead of investing in the options or traditional market based instruments, the portfolio hedges its investment funds on other investors.
Auto trading and Robots
Advances in communication and information technology has brought about a new and innovative approach to binary trading, and it is through the use of bots. The software used for bot-based trading is called Binary Options Automatic Trading Robots. Here, instead of you dealing with the security or asset, the robot or bot deals with the trade. With a lot of analytic reports available online and being written in real-time, auto trading has gained popularity. Using the knowledge of experts, the bots are able to trade on your behalf.
While it is not easy to predict the future direction of an asset, there are various tools that are available to help you achieve this. The core values are the fundamental analysis and financial and market analytics that take into consideration factors for predicting the price. Bots are adept at analysing such data, including graphs and trends.
Though the software robots were clumsy to use in the beginning, it solved the customer’s problem of analysing various aspects of trading. The flip side of this was that the trader lost out on the key characteristics of binary options. However, continuous improvements in trading algorithms and innovations in the Internet space have led to the development of advanced bots, paving the way for easier auto-trading processes.
Minimum deposit required
The minimum deposit required for a bot to efficiently function is £2000. However, most bots do work at lower deposits also, but they would be restrained from auto-trading because of lower deposits.
Preference for Software Settings
Binary options robots come in several types and the vast majority of them have very basic settings that do not vary across each type or platform. These common settings include the minimum trade, type and volume of trade on the software, the very maximum amount you can lose per day, and others. As a customer, you have the freedom of controlling the traded portfolio, even when the robot you’ve set is a basic one.
Is it worth trying?
Auto-trading is worth trying because it is hassle-free and makes trading very comfortable. To help you become more comfortable with your auto trading process, software bots employ mathematical algorithms. Today’s algorithms are very advanced, offering quicker and more accurate analysis. They deliver signals faster, a prerequisite for speedier binary options trading.
The Binary Advantages
Binary options trading has become a very interesting topic among traders and brokers alike. Therefore, it makes sense that we discuss the advantages and disadvantages of binary options trading, and why, as an investment tool, you can make money despite being a novice or amateur.
Understanding Binary Option Trading
The first thing you must understand about Binary Options Trading is that it is a very simple instrument that works both over the short-term and the long-term. Rather than purchasing the stock of a specific company, you are predicting whether the value of a company’s asset, security or stock will go up or down. You can also place the arbitrage on whether a specific index will move up or down, or even a mutual fund. There are no limits to the possibilities where binary options will not work. In traditional investment vehicles, you purchase the stock and wait for it to increase, whereas in the case of binary options, you have only two outcomes – either you make money, or you lose money.
In the forthcoming sections, we shall check out the advantages of binary options trading.
Trading Binary Options Advantages
For beginners in the trading market, it always takes time to learn about the market before investing, but not so in the case of binary options. Trading in binary options can be a great learning experience, and there are several advantages that you get when trading in such options.
- Faster Returns – Traditional investments are like marathon runners. You must wait for months or years to receive profits. On the other hand, binary options are like sprinters. You can earn your returns in as less than 60 seconds. Well, that’s higher than what Usain Bolt does in a 100m dash, but it gives you an idea of how quickly you can make profit or lose money.
- Higher Returns – A very appealing characteristic of binary options is the higher returns that are associated with trading. With return rates of about 70% or above, traditional markets cannot match binary options. However, with a traditional market investment, if you wait for a very long time, your returns can exceed 100%.
- The Numbers Game – Binary options trading is generally a numbers game, and if you are right about 55% of the time in the trade, you can break-even. You can improve on the success rate if you are thorough in your research and make smart trades, and you will invariably be successful. That doesn’t mean you will not lose money. You will lose money, but that would be more like a blip on the screen than going fully blank.
Understanding ‘Risk Management’
Risk management is the process of identifying, analysing and accepting that there is a level of uncertainty in various investment decisions. Essentially, risk is something that an investor analyses every time an investment is made, and the risk is quantified to assess potential losses. Therefore, when you are managing risk, you intend to take certain actions or steps to minimize these losses, though losses cannot be eliminated.
In the world of trading, investment and finance, risk management is necessary. Risk occurs when you purchase riskier corporate bonds over low-risk government bonds, or when you hedge your investment exposure with investment derivatives, or when a bank performs a credit check on an individual before issuing a credit. Therefore, there is an inherent risk in whatever instrument or tool you invest in. Stock traders use options and futures to minimise risks while money managers use portfolio and investment diversification strategies to mitigate the risks involved.
Understanding ‘Administrative Expenses’
Any expense that an organisation incurs that is not directly related to its product, like manufacturing, production or sales is an administrative experience. These expenses are organization wide, as opposed to an individual department. Costs of senior executives, accounting and HR professionals are examples of administrative expenses.
Nature of Administrative Expenses
All administrative expenses are fixed in nature, as they form the very foundation of business operations. Administrative expenses would always exist, irrespective of whether any sales have occurred or not. Therefore, variable administrative expenses are few-and-far between. Since these are fixed expenses, they are generally difficult to reduce, and only increase with the increase in people and expansion of facilities.
Two important concepts in relation to Binary Options are that of leverage and margin. While both are related to conveying the same idea, they are used differently in different cases. Therefore, a clear understanding of these concepts will help you go a long way in easing many of your worries related to binary options trading. At a beginner’s level, understanding leverage is sufficient.
Leverage is usually the borrowed capital used to invest in the binary trade to ensure a higher potential return, something you are seeking to make. It favours both the investor and the firm, and in general, leverage is always related to higher risk.
Higher the leverage, higher the risk. As an investor, if you decide to leverage to invest money, and the investment moves contrary to your assumption, the investor investing the money would think that the loss is magnified significantly, than if the investment was not leveraged. Therefore, it goes to say that leverage amplifies both profit and loss.
There are few basic questions that you will need to confront before you take the plunge in the world of binary options trading. When choosing the right broker for your trading activities, it is prudent for you to consider a few important points that are outlined below for your perusal.
- Company Capitalisation
- Trading Platforms
In the binary options market, trading with a regulated broker is often the most crucial factor when opening a trading account. Some markets or regions are unregulated, meaning you may be better off with an unregulated broker if you are based in those markets. However, in a regulated market, it is always important to go with a regulated broker.
Market capitalisation is another factor you should consider while selecting a broker. It is always advisable to ensure that the broker you’ve identified is well capitalised, so that you minimise the risk of losing your funds, if ever the broker does go bankrupt or when you have placed a large winning trade. When a company or broker is regulated, you know that they have enough capital in their accounts, to the tune of millions of pounds, which they can even apply for regulation.
In today’s world, there are three major types of trading platforms. While web-based platforms are the most popular ones, you also have non-web based platforms. Additionally, with the advent of smart phones, and the convergence of information and communication technologies, mobile trading has gained a lot of traction.
Mobile trading offers you the convenience of using your mobile for all trading purposes, and all you need is the broker’s app, which allows you to trade in multiple assets, currencies with a secure trading environment and strong customer service.