Trading in binary options has become a popular endeavour amongst small and medium investors thanks to it being a reasonably straight-forward process, not requiring big sums of financial investment, and typically resulting in manageable losses. Straight-forward and low-risk as it might be, binary option trading can still be problematic and there are many reasons one might advise against it as a regular form of investment. Here are some of the more common arguments that are levelled against binary options trading, with a look at how these proposed problems might be overcome.
1. Legal status differs across the world
Belgium’s Financial Services and Markets Authority implemented a ban in August 2016 amid concerns of fraudulent activity on a widespread scale. Some regard this as an over-reaction to a specific problem which could be overcome without a flat-out ban. Israel passed a law a few months earlier outlawing binary trading. In both cases, the government passed these ban by first defining binary option trading as a form of gambling, but opponents of the move point to the fact that there are those who are consistently successful in binary trading option through improving their comprehension of economic trends and market fluctuations.
Despite being known for its staunch anti-gambling attitudes that have shaped most state laws, the US is completely relaxed about binary options trading and considers the practise a legitimate form of investmentlisted on the American Stock Exchange. In 2009 Nadex, an exchange based in the US, launched binary trade options for a range of commodities, forex (foreign exchange) and stock indices’ markets.
In the United Kingdom binary options are unregulated and therefore any investments in them are not formally protected, but legal nonetheless. On the Isle of Man (a UK dependency) options companies are afforded the same status as providers of fixed-odds betting services.
Traders who are unsure of the legality of binary option trading in their country should consult a binary option trading guide. Sites like binaly.com will offer information on the specific laws surrounding binary option trading in different jurisdictions with a list of approved brokers for each country.
If binary option trading is to become a recognised and internationally regulated means of investing, a more unified approach is needed to tackle scam brokers. Seeing as attitudes differ widely across governments, it’s unlikely to we’ll see the global regulation binary option trading needs to flourish anytime soon.
2. Only regular or large investments can reap substantial ROI
Binary option traders typically stand to win (or lose) only a small sum of money with each option, meaning a good degree of time is also a necessary investment if one is to make a steady income through this means of trading. On the other hand, this is also one of the attractive qualities of binary trading. Traders have a chance to ‘feel their way’ in a type of investment that typically takes a while to grasp, making binary options a more attractive prospect for small and medium investors than some other forms of dealing. However, losses are potentially much larger than gains so it is necessary for any fulltime trader to correctly predict movements in the vast majority of cases – an unrealistic goal when starting out, which brings us to our next point.
3. First-time traders are more likely to see losses
It is only when a binary option trader has honed their skill through experience that they can sustain success and feasibly acquire larger profits.As such, new traders should not be impatient or reckless or they stand to lose big. Most binary option trading sites offer the option of ‘virtual trading’ which is done with imaginary funds as a means of allowing new traders to get a feel for the practise. With binary options, it is also the case that they less, the more likely you are to lose. When a binary option is valued at $50 or more, you are more likely to see ROI – yet guaranteed to lose a larger amount if your prediction is wrong.
In short, new traders must enter the world of binary options with realistic expectations, practise before betting larger amounts on a more regular basis, and continuously study the market they are trading within if they are to find success.
4. The binary trading industry attracts scammers
Whilst there’s a whole range of reputable sites dealing with binary options, it is undeniably the case that there has been a proliferation of scam artists and fraudulent brokers operating within the field. In the United States brokers are required to be registered with the Commodity Futures Trading Commission (CFTC) and prospective traders should under no circumstances deal with brokers who do not hold the required certification. In other jurisdictions, there are similar regulations and safeguards. A little research undertaken before entering into any contracts or arrangements will safeguard against being scammed by unscrupulous operators.
The primary criticisms of binary option trading are well-founded, but do not necessarily outweigh the appealing pros of this type of investment. Be wise about the brokers you trade with, and realistic about your expectation, and you might just reap the rewards of binary option trading and the fascinating world ithas to offer.