All forms of financial speculation have one key disadvantage; potential losses. Binary options are no different in this respect and they have created a stir among traders who are quick to point out both the positive and negative attributes of binary options trading. Whilst there are those who consider binary options as a gamblers paradise, where a simple flip of the coin can determine a higher-or-lower bet, others contend that they are potentially an excellent way to make substantial amounts of low-risk profits for those employing a decent strategy.
Do the risks always outweigh the rewards?
One of the key arguments from those who are skeptical about binary options trading is that the risk to reward ratio is always skewed in the favour of the broker. This is due to the fact that, whilst profits of regular binary options are predetermined and known in advance, they are always less than the value of the initial investment. Binary options typically pay out up to 85% of the initial investment and opponents suggest that this means that the losses will always exceed the potential earnings.
There is a flaw in this argument, however, which is the fact that many brokers prove an insurance rate of up to 15% on each binary options purchase. This is a value of up to 15% of the initial investment which the trader will receive back should their options close out of the money. Whilst some options do not provide for this, those that do effectively balance the risk of a minimum of 85% with the potential profits of up to 85% to create a much more balanced risk to reward ratio. Additionally, the ability to trade special binary options markets with up to 500% profit goes a long way to dispelling these arguments as universally applicable to binary options trading.
Poor charting and visual trade entries
Charting quality is a problem but one that is easily resolved
Many traders attempting the transition from additional forms of trading, such as forex or even spread betting, are likely to find the basic charting software provided by binary options brokers a little off-putting. This is because many binary options brokers simply provide very basic charting with entries being defined by a horizontal line moving higher or lower with price fluctuations. Although this is a potential disadvantage to technical trading used to spotting opportunities through analysis of chart patterns, many binary options traders combat this by using alternative charting software alongside their binary options platform to spot trades. Ultimately, many binary options platforms can be used for execution-only with the majority of brokers, although slowly improving their software, preferring to allow other providers to provide high-quality charting.
Too easy to start trading binary options?
Ironically, the ease of access to binary options trading, even for those with little or no knowledge of financial markets, is touted as a potential disadvantage. Many skeptics argue that the sheer simplicity of binary options makes it difficult for many to develop a consistent strategy and allows too many gamblers to waste their deposits on a series of poor decisions. Binary options traders, however, point out that it not only offers one of the most straightforward trading concepts (higher or lower) but also allows risk to be controlled much easier than traditional forms of trading. Due to the fact that all losses are predetermined and stop losses are neither necessary nor can be changed throughout the life of the options, many counter-argue that binary options are actually the easiest form of trading to exert 100% control over potential losses.