In binary options trading, an investor bets on whether the price of an asset will go up or down in a certain amount of time. If the trader’s prediction is right, they get paid; if it’s wrong, they lose all or part of their investment.
Binary options trading has become increasingly popular due to its low barrier to entry for new investors and its lower capital requirements compared to other traditional investments. A recent review by a reviewer on binaryoptions.com found that many individuals are drawn to this type of trading due to its simplicity and potential for high returns.
However, despite its popularity, many misconceptions remain about how binary option trades work and how successful traders make money from them. To sort through fact from fiction regarding binary options trading, let’s look at some common myths about this form of investing.
Myth 1: Binary Options Trading Is a Scam
Some fraudulent activities in which traders were misled, manipulated, or unable to get their money after making profits led to the idea that binary options trading is a scam. But it’s important to remember that this kind of thing happens in all investment markets and is being dealt with by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
Facts to Debunk this Myth
The idea that binary options trading is a scam is not true in general, as the following facts show:
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Regulated Brokers
Many brokers must follow strict rules and regulations set by the CFTC, SEC, CySEC, FCA, and ASIC. This includes keeping customer funds separate from broker funds, being clear about prices, and having fair trading conditions.
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Resources & Education
Several brokers offer educational materials like webinars, e-books, video tutorials, and market analysis tools for traders to improve their skills.
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Profit Potential
Binary options trading offers traders the potential to profit by speculating on market movements. A good understanding of the market and a sound trading plan can increase the chances of success.
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Transparency
When trading binary options, traders can find out about their possible payouts and risks before making a decision. This lets them make better decisions and better manage their risks.
Myth 2: Binary Options Trading Is Only for Experienced Traders
Some people mistakenly believe that binary options trading is only for experienced traders who have been in the financial industry for years. Online trading platforms have made it possible for anyone to try trading binary options.
Facts to Debunk This Myth
- Many brokers provide helpful resources to help new traders get up to speed on how binary options work. This includes video tutorials, webinars, and demo accounts so traders can practice with virtual funds before investing real money.
- Trading binary options is also often seen as a more straightforward form of trading than other financial markets due to its all-or-nothing outcome structure, where either an option expires in the money or out of the money. This makes it easier for less experienced traders to understand risks and rewards at any given time during a trade.
- Popular online trading platforms include come equipped with educational materials that may be useful when starting this type of trading market.
- Professionals offer advice on various techniques employed in the finance field and news-related updates concerning financial markets worldwide. This information can be found on independent websites and forums.
Myth 3: It Is Okay to Trade 20% of Your Account
This myth seems to come from the false belief that trading with a higher percentage will increase returns on binary options trades. However, this is not always the case. Those who have tried it often find out quickly that there is more chance for losses than gains when trading in too large an amount.
Facts That Debunk This Myth
It’s not prudent to risk any more than 3–5% of your account on each trade when using binary options strategies, and even less should be risked if at all possible. Even trading 10% of one’s account is considered high risk. It can cause significant losses very quickly, as well as significantly reduce chances for successfully building a portfolio over time with consistent growth potential.
This is because professional traders know it’s impossible to win every trade. There will be streaks where numerous trades in succession don’t work out as expected. If you’ve put too much into those particular trades, all your hard work building a successful financial portfolio can go down the drain exceptionally quickly!
Myth 4: Trading Bonuses Are Free Money
Many binary options brokers use bonuses as an incentive to attract and retain clients. Some traders may view these bonuses as free money, but most come with terms and conditions attached before any withdrawals can be made. These could include a certain number of trades or other requirements that the trader must meet before he or she can withdraw the bonus money or make money from it.
Facts that Debunk This Myth
Before putting any money into a trading account, all traders who use bonuses must read the terms and conditions that come with them. This ensures they completely understand the expectations if they accept the offer.
Using bonuses responsibly can be beneficial; however, it is important to remember that they are not “free money.” When a broker gives a bonus, it usually comes with some conditions, like a certain level of performance or number of trades that need to be met before the deposited funds can be withdrawn. Therefore, considering all possible repercussions of using bonuses before accepting them is essential.
Conclusion
Both experienced traders and new traders can use binary options trading as a way to make money. However, the rules of risk management should be adhered to. Along with this, you should be careful with bonuses because brokers may have different rules for them. With sound knowledge, effective strategies, and awareness of potential risks, binary options trading can prove profitable.
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