Ever since 2008 when Binary Options burst on to the mainstream, they have been constantly gaining more and more popularity. But despite all this, people are still very uninformed when it comes to the basics of this industry. That being said, I’ve decided it’s time to write about 5 things you absolutely need to know about binary options. This article is mostly for the newbies but even if you don’t consider yourself that way, take a look; you might find something you didn’t know. So let’s get down to business:
1. The Disclaimer. It’s There for a Reason.
“HIGH RISK INVESTMENT WARNING: Trading Binary Options is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose.” Binary Options brokerages (the ones that are regulated at least) are required to display this disclaimer or similar ones on their websites. Forex brokers have to do it as well. Read it, understand it and then read it again! I don’t know why, but a lot of people still think that Binary Options are an easy and sure way to make money. Things are not like that: trading is highly speculative, carries a high level of risk and may result in loss of all your invested capital. I am not talking about binary options exclusively: Forex is risky, stock trading is, all forms of financial trading are risky (at least the ones I know about).
2. The Bonus – Take it or Leave it
Most binary options brokers will offer you a Bonus on your deposit. It works like this: you invest 1,000 bucks and they give you an additional 50% (this percentage differs from broker to broker) to trade so your available sum is 1,500. Sounds too good to be true? Don’t worry, it’s true. But… the ever present “but”… once you accept a bonus you will have to trade a certain volume (which again differs from broker to broker) before you can withdraw. And don’t think that you can trade the extra 500 bucks or 50% or whatever the bonus is and if you lose it, just withdraw the rest of your money. Nope, that doesn’t work either because the bonus will be deducted from your balance. Some brokers don’t even allow you to withdraw a single penny if you haven’t reached the required trading volume. Bottom line is this: if you accept a bonus, make sure you know what the consequences are. Read the broker’s Terms and Conditions.
3. The Account Manager – Not a Trading Guru
Once you open an account with a binary options brokerage you will get an Account Manager. Usually these guys will offer trading advice and will even trade for you. They will present themselves as seasoned veteran traders, with expert knowledge of the market. They will do their best to make you trust their skill and follow their advice. Please don’t! Most of the time, these Account Managers are nothing more than sales representatives. Their knowledge is related to salesmanship not trading. Sure, among them there might be some real traders so you might be lucky and get a good account manager, but the chances are slim. If they were really such skilled traders, believe me they would be sitting at home trading and making money. If you want to be a trader, be one, but don’t expect to be showered with money by your account manager.
4. The Chart – A Trader’s MAIN Tool… and Brokers don’t Give it to You
You cannot be a trader without charts. I don’t think I have to explain further. Ok with that out of the way, I have to tell you this: once you open an account with a binary options broker you will not get charts. They all say their platform is the best in the industry (I don’t know how they can all be “the best” but… whatever) when in fact they don’t even give you proper charts. All you get is some price line which doesn’t even look like a chart. You won’t get any indicators or candlesticks; you won’t be able to at least draw a trend line or to add a moving average which are the very basics of technical analysis. The solution is simple though: get your hands on a third party charting package (a demo account from a Forex broker, Netdania.com, MetaTrader, etc.).
5. Trading Binary Options is Not Easy
I am telling you this because on every website you will hear how easy trading is. Almost all brokers claim that you don’t need any prior experience, you don’t need to learn anything and trading is as easy as “Pick an asset – Pick a direction – Click Trade”. Well, guys they are right in a way: even a monkey can click on Put or Call so yea, it’s very easy. However, deciding on which one to click is a tad more complicated. I’d say that if you wanna do it profitably, you definitely need to put in some work. Nothing is as easy as some would want us to believe.
Wrapping it up
There you go, now you know 5 important things about Binary Options. But this is not all. You will learn a lot more if you are really serious about trading Binary Options. I didn’t mean to scare you away from trading but this industry is full of scams and traps are all over the place – anybody can tell you that – so you need to be prepared and leave the naivety outside when you step through the Binary Options door.