Binary Trading: Pros and Cons of Speculating on Market Movements
A growing number of individuals have taken up investing as a form to raise extra capital and to divest into different marketplaces. While there are some who are looking at long-term strategies such as those employed when building a retirement portfolio, there are others who are instead interested in short-term pay-offs and the possibility to take advantage of fluid market conditions.
Binary trading can be an excellent way to leverage these factors and yet, there are still some points to keep in mind. Let us look at some of the pros and cons associated with a binary trading position.
Fluid Positions and Quick Returns
These are arguably the two main reasons why one would wish to become involved with binary trading. As some positions can be closed in as little as 60 seconds, the chances of turning a short-term profit are very real. This is also an excellent method for anyone who does not wish to be tied into a more insolvent position such as a blue-chip holding.
Bi-Directional Pricing
Liquid income can be made even if an asset loses value within a set period of time. This is the fundamental principle behind binary trading. It is the responsibility of the investor to correctly predict this movement. If he or she does, a profit will be accrued. This is also the reason why binary trades can be popular during times when markets are exhibiting a greater level of volatility.
Limited Gains
While speculating on market movements can produce results, these actions are not without their share of risk. One observation worth noting is that unlike trading other assets, the profits associated with binary positions are capped. This is primarily the result of time limits being affixed to any given trade. Thus, this might not be the right strategy for those who are looking to accrue larger amounts of revenue.
Market Speculation
Another area to address involves predicting market movements. As a rule of thumb, it is easier to predict what will happen within a marketplace when viewing a position from a long-term perspective. As we have seen above, binary trades are short-term positions. It is therefore much more difficult to ascertain the movement of an asset. This obviously adds an extra level of risk to any trade.
Regulatory Issues
A final potential concern involves the type of regulations that binary traders are associated with (depending upon the country or region). While this has largely been dealt with over the past decade, there are still firms which promise unrealistic rewards and fail to deliver. This was (and is) particularly the case with the OTC markets located out of the United States. This is the main reason why only reputable online brokers should be chosen.
So, we can see that there are both benefits and drawbacks associated with these types of trades. It is also a fact that learning their mechanics is the best way to make an informed decision. If you would like to learn more, CMC Markets offer some excellent advice on how to trade binaries.
