Risk and Binary Options

Binary options InvestA Forbes article from 2010 advised against investing in binary options because the author felt that they were nothing more than high-end gambling ventures. Though unable to prove their argument in the article, it caused some debate in the world of investment. After all, if you are investing in binary options, it can seem like a “win-lose” or “50/50” issue.

Why? Think of it this way – in many binary options you are investing based on a predicted outcome. That sounds like a roll of the dice, but the reality is that very few binary options investors make guesses or behave in the same way that gamblers do. Rather, they use data, analysis, ongoing studies of the markets or their actual asset holdings, and solid strategy to benefit the most from binary options.

The Diversity of Binary Options

Options, or what a lot of experts call “plain vanilla options”, allow you to purchase the right (not the obligation) to buy an asset at a specific price for a fixed amount of time in the future. In other words, you can purchase an option on something like gold, locking in the price, and then choosing to make the purchase (or not) when the contract reaches its expiration date.

This, however, is not the way that binary options work at all. Instead, they give you the chance to invest on a prediction that market prices may increase or decline in a set period of time. If you predict correctly, you get a fixed return on that investment. If you are wrong, you lose the investment.

As a simple illustration, let’s stick with the gold investment. A normal option would let you buy the gold at the rate your contract indicated. If, though, gold suddenly declined sharply below the price it was when you purchased the contract, you lose the amount you paid for the option.

If you buy binary options for gold, let’s use the binary call/put (high/low) options, you don’t ever actually buy gold. Instead, you are buying into a contract that indicates your prediction about the direction of gold prices, whether up/call or down/put. If you choose a binary call option, you are saying that prices will go up by the time the contract expires. If they do exceed the strike price, you will receive a percentage of your investment in returns.

The Surety of Binary Options

Now, with that simple illustration, we can see that it is not all that difficult to calculate or gauge whether an asset or market is going to experience increases or decreases. Using the same sort of data and information you put to use for standard investing activities will show you the probability of market changes and the most likely direction. Even in a volatile and relatively unpredictable period, you can still benefit from the use of binary options. For example, you can use a strategy of call/put options, touch options (in which you predict how high the prices will go), or boundary options (which allow you to invest in increases and decreases at the same time).

Data, strategy, and a willingness to use binary options in addition to your other investing methods will pay off.

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