Advantages and Disadvantages of Binary Options

Binary option is the term used in the context of financial markets, it refers to those options in which payoff is simple that is you either you make profits or loss the entire investment and there is no third possibility and that is the reason why they are called binary. In order to understand it more clearly let’s look at some of the advantages and disadvantages of binary options –

Advantages of Binary Options

  1. The first and foremost advantage of these options is that one gets high returns from small investment because if the individual gets it right then there is nothing like binary options. So for example, if an individual by depositing $500 predicts that NASDAQ will close in red and payoff on getting the right prediction is $500 and NASDAQ actually close in red than he or she will get this return on the same day.
  2. Another advantage of binary options is that one gets quick returns from these options, unlike other instruments like fixed deposit which give 3 to 6 percent in a year or stocks which give 10 to 20 percent average returns in a year. So in the above example if an individual gets it right than he or she will get 100 percent return in 1 day.
  3. Another advantage is that one can predict the stock market movements on the basis of various factors like sentiment of investors, economy conditions, liquidity of market and so on and hence in a way it is not 100 percent gamble which is the case with other forms of gambling where the outcome cannot be predicted as they are purely based on the luck. In simple words, binary options is a mixture of both luck as well as analysis of an individual.

Disadvantages of Binary Options

  1. The biggest disadvantage of binary options is that one can lose his or her entire investment in one go and it gives no second opportunity, so for example in the above case if the individual is wrong and NASDAQ close in green than the investor will stand to lose the entire $500 in a single day.
  2. Another disadvantage of these options is that they are unregulated in the sense that there are no regulatory authorities to overlook the system and sometimes an individual even if he or she gets profits is deprived of the money by the binary options brokers and hence selecting right and trusted binary option broker is a must while doing binary options trading.
  3. Another demerit of binary options trading is that it comes under the category of speculation and no matter how much analysis one puts the luck factor will always be there implying that even after doing hard work on analysis an individual can never be sure about the outcome as time period is extremely short unlike other forms of investments like real estate, fixed deposits, stocks, mutual funds and so on.

As one can see from the above that binary options have both advantages, as well as disadvantages and any person thinking of doing binary options trading, should carefully look above points as it is very risky and any mistake can lead to big losses for an individual.

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