Why The Use Of Binary Options Can Lower First Time Trading Risk – Guest Post
Making investment in the Foreign Exchange markets, or ‘forex trading’ as it is commonly referred to, has become increasingly popular as a means of financial investment. It is now widely used since regulation opened up access to these markets for private investors. Technological advances have also made it much easier to deal on them, with fast Internet and mobile technologies now allowing trading from almost anywhere. However these are not markets without risk and first time traders in particular should be aware of the dangers to their capital. For this reason it may be worth investigating the use of binary options for trading them if you are unfamiliar with the workings of currency exchange.
As a new financial product, binary options have enjoyed huge popularity among both first time and more experienced investors. They make it easy to get started with trading, even for people with little or no prior experience of the investment markets. The structure of a binary trade where you simply call the market higher or lower is easy to get to grips with. In addition there are no complicated stop levels or profit targets to work out as with regular spot Forex trading. If you are already lost at the mention of these terms then binary options could be for you. Even a novice trader will be able to get themselves up and trading shortly after opening an account. They are designed to make trading easy and at this they truly succeed.
The key benefit of using binary options to trade on currency pairs is that they can help to control the risks associated with investing in these markets. When directly investing in the Forex markets you need to understand how stop levels work and where these should be placed. These need to be added to each order to instruct the broker to exit your position in the event that the market moves against you. If you don’t make use of them then you will be liable for all losses on your account until your orders are closed. This could even wipe out your account.
When trading with binary options contracts you have no need to worry about this. There is no fear of working out where to place your stop or even forgetting to set one at all. Unlike spot Forex trading the risk premium on each contract that you place is fixed. For example, if you were to purchase a binary contract expecting the EUR/USD to move higher, then your only liability is the initial amount you invested. It wouldn’t matter if the pair ended only one pip or one thousand pips below your level.
Trading this way is therefore said to offer ‘controlled’ risk as there are no potential nasty surprises. Before you even place a contract in your account you will know both your liability and the potential profit that you stand to make. What is more, many binary options brokers will even refund you a portion of your investment if your analysis doesn’t work out. This is termed a ‘rebate’ and could see credited back with as much as 10-15% of your investment.
Whichever method you choose to use for trading on the Forex markets there will be a level of risk involved. However in using binary options you will be aware of these risks prior to even placing your trade. This together with the low requirements for investing make it an ideal way for building up your familiarity with these markets whilst minimizing your overall first time trading risk.
This post is supplied by Vernon Lees a full time Binary Options Trader and financial writer. You can follow him personally on Google+.