During senior year of college, I was already highly immersed in the world of stock market investing. I used Ameritrade at the time and would purposefully schedule my classes until after the market closed in order to day trade online. I’m lucky I didn’t have a lot of money because I faired poorly in my trades, but I learned a tremendous amount that would later set me up for a career on Wall St.
One of the desks I could have joined on the 50th floor of 1 New York Plaza was the derivatives desk. I’ve always thought of derivatives as only for hardcore math geeks, of which I was not. I disliked higher level math with a passion. But when I spoke to the team they seemed absolutely normal. I knew very little about options, so I was told to read, “Options As A Strategic Investment,” a 1,000+ page book by McMillan and fly back a month later for follow up interviews. They ended up asking me only one question from the entire book, “What is a butterfly spread?” I didn’t join the derivatives desk in the end, but ever since that experience I’ve always kept my eye on options as a way to hedge or juice my investments.
The following is a post that discusses the world of binary options, something I’m not too familiar with. I don’t recommend options investing for every day investors. Get the basics down first!
The idea of investing in stock and trying our hand at stock market trading is something that appeals to many of us, however, very few of us will make the jump from thinking about it, to actually doing it. There are many reasons for this – for some it is an issue of capital, for others its accessibility to the stock we want to invest in, and for others its fear, a fear of not having the savvy and the chops to navigate the financial markets and make a profit while doing so.
At the end of the day, investing and profiting from your investments is not an easy game. I suppose if it was everyone would be doing it! If you do find yourself been put off investing due to any of the reasons mentioned above but you would still like to get a piece of the stock market pie, there is an alternative investment vehicle one that allows you to invest and profit from the stock markets without having to overcome obstacles that hold many of us back.
This alternative investment vehicle is “Binary Option Trading” aka “all-or-nothing options.”
What is binary option trading?
Binary option trading is still a relatively new form of investment vehicle. In-fact it has only been available to the mass public since 2008, when the owners of anyoption pioneered the industry.
This type of trading involves speculating about the future prices of underlying assets – Commodities, Indices, Currencies, and Stocks, with this form of trading you do not actually purchase ownership in physical stocks, or companies but rather you make a prediction to weather a share price will increase or decrease within a fixed period.
With binary option trading there are only two possible outcomes (hence the name “Binary”), your prediction is either correct in which case you stand to make a considerable return on your investment, or your prediction is incorrect in which case you lose all or most of your initial investment.
Unlike traditional stock market trading, binary options trading is super-fast, trades usually last anywhere from ten minutes to an hour, after which you can cash-out. There is no waiting weeks, months and years before you see a return on your investment, and returns can be up to an over 70%.
How does binary option trading work?
The trading process is very straightforward – You commence trading when an underlying asset is at a certain price “Strike Price” (determined by you). If you think that the underlying asset will finish above the strike price you select what is known as a “Call Option,” if you think that asset will finish below your Strike Price you select a “Put Option” – then you just sit back and wait for the trade to play out,“Expire,”!
With binary options, the return on any given trade is pre-determined, it does not matter if the trade expires 1 cent or 100 dollars in the money the payout will be the same. This means you will always know how much you stand to make before you commence trading, and as I said earlier, returns can be up to and over 70% of your initial investment.
The same is true if you are on the losing end of a trade, even if the trade expires only 1cent above or below your strike price (depending on which position you have taking), you lose your investment. However, the good thing about binary options is that you have total control over the risk, you can choose how much you invest per trade be it $20 or $2000, and you can only lose what you invested – no more.
Where can I trade binary options?
Binary options are traded through binary options brokers, these are online platforms that give you access to underlying assets from stock markets across the globe. Platforms are designed with ease of use, and intuitiveness in-mind, there is no learning curve, and you can start trading as soon as you register, however, it is not advisable to trade straight off the bat without doing some homework first (more about this later).
There is no shortage of online brokers! In-fact there is literally hundreds of them but not all are reputable. When choosing a binary option broker, you should exercise caution and I recommend that you use an established, regulated broker.
When you choose a broker, you will need to make an initial deposit, anywhere from $25 to $200 depending on the broker, and you can invest as little or as much as you want per trade.
Is binary option trading gambling?
Investing is one big gamble. Many binary option brokers will tell you that anyone can trade and make money from binary options, which, is technically correct, but if you trade without knowledge of what you are doing, then you really are only gambling, your chances are 50/50 and you may as well be playing roulette. Those who are truly successful, and make profits consistently take the time to learn the trade.
It is by no means rocket science, but it does take some degree of commitment to learning and staying on top of current events. If you want to be successful at option trading you must take the time to learn about the assets that you are trading and the factors that affect their prices. You must also learn some of the more basic strategies that you can employ, having knowledge of factors that affect asset prices and some basic strategies will really give you an edge and put you in the driving seat, allowing you to predict with more accuracy the movements and fluctuations of asset prices.
Conclusion
Binary option trading is not going to appeal to everyone, but it is a real and viable alternative to traditional investing. Sure, it is not the same as actually buying stock, or owning shares in a company but it does allow you to profit from the stock markets, and one of the major advantages of this type of trading is that it allows you to profit from both rising and falling markets.
The reality is, I’d look into the best robo advisors to try and build long-term wealth. They are cheap and easy to use for the long term.
Updated for 2017.
I don’t really see how this is any different from going to a roulette wheel in a casino and betting a bunch of money on red or black. Granted, there are outside forces you can research to give you a more educated guess but I still don’t see how that could be a long term profitible endevour. Maybe it’s because I don’t fully understand the concept but I don’t think I would take part in that kind of trading at any point.
Definitely feels like gambling to me given the all-or-none outcome. But that’s the thing, the reason why I don’t gamble in casinos and just play poker is b/c when you can gamble in the stock market, you feel stupid gambling in the casino where you can’t ever get an edge.
I’ve traded options before and found it extremely difficult. I did make money on a few but lost more than I gained. I think some people view options as a fast way to make money and bypass the research necessary to make good judgment calls (or puts). :)
I remember buying WORLDCOM calls at 150 strike in 2000! Top of the market before it went bust. Awesome! :)
I had heard of binary options before reading this post but hadn’t really know what they were. That’s interesting that they tend to trade on such super short durations. Definitely takes a lot of hands on monitoring to manage those types of investments and make money that way.
I really appreciated the content in this post; it’s very valuable to me, as I am a beginner investor. Thanks for sharing!
What website do you recommend for Binary trading?