Is Binary Trading Safe?

The overall concept of binary options trading is to provide a simple investment possibility where traders only make a prediction on whether the price of an asset will be above or below a specific price after a certain time. The only outcomes are ending up in the money (profit) if the strike price is met or out of the money (loss) if it is not.
Like any other financial instruments, trading binary options bears some financial risks that all traders should have in mind if they want to stay on the safe side. Here are some often over-looked risks that new binary options traders need to know about.

Capped profit and loss

It is important to note that 100% of the initial exposure is lost in case a position expires without hitting the strike price. The possible losses while trading binary options can be great, especially if someone places huge sums in a trade and the strike price is missed. Conversely, traders only receive the agreed payout even if the prices rise much higher than the strike price.

Precise profit and loss points

Unlike many other financial trading vehicles, binary options have a strike price that uses precise ticks or points. In other words, with binary trading, being 0.0001 points off the mark means that the strike price was not reached resulting in a losing trade. This is disadvantageous in comparison to traditional financial trading where profits or losses can be realized as soon as the ticker starts to fluctuate.

Added psychological risk of over-trading

Over-trading is one of the most common poor money management habits. Unfortunately, due to binary options having an expiry period, many traders end up making more trades to take advantage of a good streak. A trader who opens many trades in quick succession just because he does not want to miss a setup that “looks profitable” is likely to wager risky percentages of their account. Good traders ensure that they are not heavily invested in a trading setup just in case the unexpected happens. Wagering unmanageable percentages of the account balance at once reduces the chances of recovering from a string of losing trades.

Good brokers allow traders to manage trades while they are still open. For example, they can allow investors to close trades before the agreed time or rollover (postpone) the expiry date. While these conditions are meant to help manage traders’ profits, they can be of great disadvantage to over-traders. Having too many trades open at the same time reduces the ability to optimally manage those trades. Traders encounter hard times when they need to make crucial changes to multiple positions that are soon to expire. In theory, each new 1-minute trade means that traders have less than 60 seconds to make any relevant changes.

Risk of scammers and dummy websites

Because all binary options trading takes place online, the industry has been a prime target for scammers. The trading is not always regulated and therefore many scam websites and apps exist, yet it is still hard to tell a scam from a legit website. Some obvious signs of a dummy binary trading website include deposit offers that sound too good to be true and the lack of a demo trading feature. Most of these sites only want new investors to deposit money quickly and there goes the money. A quick online search also reveals that they are tied to very many scam warnings and negative reviews.

Regulatory challenges in binary trading

It is expected that there are a few bad eggs in any pool of websites that offer any brokerage services. The same problem applies in the binary options world. There are some trading platforms that operate unregulated, exposing the traders to great risk. Unfortunately, these unscrupulous brokers may often thrive on dishonest reviews, sparse information about their proprietors and different scams. Always ensure that you are trading through a platform that is recognized and regulated by a reputable financial institution.

In conclusion

Binary trading bears unique financial risks but it can still be done in a safe and manageable environment. On the bright side, having fixed risks and fixed rewards before entering each trade makes trading binary options a good way for risk-averse traders to exploit their edge over the market.