Trading can be a highly stressful environment and it is one that is fraught with risk. Many people earn substantial amounts through trading, but there are numerous risks too. Unfortunately, it is impossible to completely eliminate these risks but, there are several ways that you can manage and minimise them. Binary Options are one of the main methods that people use to trade in order minimise the inherent risks associated with forex.
Binary Options Explained
Essentially, when trading using Binary Options, you’re making a directional decision on the price of an asset. For example, if you were trading EUR/GBP as a currency pair, you’d have to decide whether the price of the euro was going to go either up or down against the value of the British pound.
This decision is made over a ‘session’. Put simply, a ‘session’ is simply the timescale that you’re making the decision over and this can range from anywhere from under a minute to a year, As well as this, the timescale is completely up to you.
When your session expires you can either win, lose or breakeven depending on how the markets have moved. Unlike some traditional trading platforms, Binary Options are traded for a ‘fixed return’. This means that whether the price of the euro in the previous explanation would have gone up 1% or 15% you would receive the same return.
Risk Limitation
Often, this means that potential gains are not as high as in other markets but, crucially, potential losses are also reduced. On the other hand, if the value of the euro would have dropped during the session, you would have lost your entire stake amount. Like with winnings, this is a fixed amount so, no matter how much the value drops by, you will lose your investment amount.
Although this seems like a disadvantage at first glance, the opposite is true and this is one of the main advantages of trading using Binary Options. With most trading options, you can lose more than your deposit and the potential losses are virtually limitless. In Binary Options, however, your losses are limited to your deposit so you know exactly how much you will lose as a maximum amount.
A Greater Degree of Simplicity
Trading is generally considered to be incredibly complex and, if you’re just starting out, Binary Options are a great tool to boost your understanding. When you’re trading using Binary Options you only have 3 decisions to make:
- What Asset you’d like to trade
- Whether its price will rise or fall
- What period of time you’d like to wager over
What could be simpler than that?
In summary, Binary Options are a great way to lower your risks when trading. Their limited losses mean that you will always be fully aware of your maximum potential losses and, their simplicity means that they are perfect for people who want to start out in the forex world.
Top professional traders always stress risk control as the most important factor. Read any of the books in the Market Wizards series and they all sing the same tune.