Avoid Misconceptions Stopping You from Investing In Binary Options

Avoid Misconceptions Stopping You from Investing In Binary Options

Binary options are one of the simplest methods of trading but are not without a few complications. These lead to some common misconceptions that traders planning to invest in them may face.

Here are the most common misconceptions about binary options.

  • Binary Options are Similar to Gambling

On the surface, binary options may look like bets people may place on a football game. They are based on a trader’s decision on a simple binary statement — that the market will reach a certain level before expiration. If they speculate that the market will indeed reach a certain level before expiration, they agree and make a ‘yes’ trade. But if they feel it will not the specified level, they disagree and make a no trade.

Unlike other bets though, binary options have fixed odds based on the various striking prices. This means that for every contract, the trader knows precisely how much they will gain or lose.

Other ways in which binaries differ from other trading options is that they can be invested in for concise time horizons, ranging from hours to months, and the format of their payout is all or nothing.

  • Binary Options are only Bought not Sold

Amateurs may have a misconception that binary options are only to be bought, and cannot be sold. What they should know is that binary options are fully collateralized.

That is, one trader’s loss is another’s gain. This interaction is only possible if all traders are allowed to either buy or sell depending on their choices.

To sell a binary option, traders have to make no trade on a contract. This implies that they do not think that the market will reach a certain level before expiration.

  • Binary Options Require Huge Capital Amounts

In the United States, binary options are always priced between $0 and $100, and a trader needs as low as $250 to open an account with Nadex. Since the potential loss or profit is clearly defined, the trader does not need to have a lot of capital to invest in binary options.

Investing and trading are inherently risky businesses, and traders should have a clear understanding of what they are getting into. Thus, it is important to clear any misconceptions one may have and make decisions with confidence.

Categories: Finance

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