Binary options, despite not being extremely popular among traders, are still one of the most advertised trading options. At the same time, they come with a rather bad reputation, mainly due to the way they work.
Just as the best binary options brokers will explain to you, this type of trading implies the trader betting on just two results – either a win or a loss. If they win, they are paid a pre-determined amount and if they lose, they don’t receive anything. This is why binary options are often seen as a gamble, but they’re traded nonetheless.
Due to them being borderline, as mentioned above, there are a lot of misconceptions surrounding binary options – let’s take a closer look!
The Capital Requirements are Always Clear
People believe that, since binary options are essentially just like any other type of trading, you can use them regardless of the capital that you own. Therefore, some also end up believing that you never know how much you’re going to lose with binary options.
In fact, this trading option always comes with a minimum price of $0 and a maximum price of $100. On top of that, the traders don’t try on margin, meaning that they always need trade-available funds in their accounts.
Last but not least, before engaging in a trade, the terms of the binary options trade state the potential profit as well as the risks clearly.
They Are Actually Regulated
Once again, due to them being often compared to gambling, a lot of people believe that binary options are not regulated. Naturally, this also makes people think that it’s easier for them to be scammed by brokers offering binary options.
Within the US, this type of trading is heavily regulated by the CFTC but, at the same time, US binary options have slightly different terms and regulations compared to the rest of the world.
They Are Not Long-Term Investments
Even though they seemingly behave like long-term investments, binary options feature something called the expiration date. This is when a trader knows if their prediction was accurate or not. After this date, the particular trade ends and vanishes.
That’s it. There’s no way to make binary options a long-term investment. Still, one must take into account that binary options trades can last from as little as a couple of seconds to as many as several days.
They Are Not Gambling
There are a lot of things that can make one realize that binary options are not actually gambling. For example, the fact that traders must learn about call options, hedge, put options, and other various terminologies related to this type of trading.
Beginners could engage in such trades easily, just like with gambling, but only professionals will know that even binary options require market analysis and strategy planning before the opening of a trade.
The Bottom Line
Binary options, contrary to popular belief, are a viable trading option. They are just as complex as Forex trading is but preset different risks and require slightly different capital.