Binary options trading as an investment vehicle

It is human nature to try to make the most of our beings, including our material assets. With the exception of those who have no interest and throw away their money, most are looking for ways to increase the amount they have. They look to the future and try to create enough resources to see their pensions financially stable.

One of the most common ways to try to create cash reserves is to use the available cash to invest in some kind of investment scheme. There are many different investment tools available, and one of the most popular lately is the binary option.

Like all investment schemes, there is an element of risk, but one of the reasons for the popularity of binary trading is the opportunity to make a significant profit in a relatively short period of time.

Wrong investments

There was a time when people were very happy to put their spare cash in a bank. They felt safe there, and it gave them the confidence not to worry too much about the interest rates they received.

Unless you have a lot of money to invest today, putting your money in a savings account is like throwing it away, even if it’s for a long time. Interest rates on standard savings accounts are now almost always below inflation.

This means that although the amount of dollars in your savings account increases every year, the real value decreases. In other words, with the amount in your savings account, you can get less than the amount you originally invested. In the current financial climate, putting your money in a bank account should be considered a bad investment. This is especially true of long-term goals such as a comfortable retirement.

Why is binary options trading a viable alternative?

As already mentioned, binary trading offers a way to make a decent profit in a relatively short period of time. One of the key features of this type of trading is that the results are known quickly and allow investors to take corrective action before large losses occur.

Then we will compare this type of trade with other forms of investment. First, it is important for a potential trader to understand what this type of trading involves and how it differs from more standard types of investments. The best way to do this is to compare this type of trading with stock market investments.

To make our explanation clearer, we will create a fictitious company called Ace Products Inc., whose shares are sold on NASDAQ. The company is doing well and its share price has risen more than a dollar over the past year to $ 7.95 today.

Shares

Shares or stocks are issued by companies floating on one or more stock exchanges around the world, such as the NASDAQ or the London Stock Exchange. Companies issue shares at a certain price, after which everyone can buy some of these shares. Shares are bought and sold through exchanges. The price of shares is determined by supply and demand. The higher the demand for a particular stake, the higher the price.

When you buy shares in a company, no matter how small the share, you own a share in that company. This means that you have a small word about how the work is done.

Shareholders have the right to vote at the company’s AGM, where they can vote to appoint a member of the company’s board and approve the company’s annual accounts. Most people with a small stake are not bothered to attend an AGM to do so. They can appoint a lawyer to vote on their behalf. If they do not participate and do not appoint a lawyer, they delegate the right to vote on their behalf to one of the members of the board.

If the company they invest in makes a profit, the board may decide to pay a dividend. The company decided to have a cash to be distributed among shareholders. Each share will have some monetary value and the total share to be paid to a shareholder is the dividend value of the share multiplied by the total number of shares it owns. When a dividend is paid, most companies allow shareholders to reinvest in new shares or choose to receive cash.

For the purposes of our illustration, we assume that you own 1,000 shares in Ace Products Inc., which you purchased 6 months ago for $ 7.25 each. The company said it would pay a 2c dividend per share. This means you have the right to pay $ 20 from the company. For the sake of simplicity, we will not see brokerage fees and offer / offer spreads (hereafter), but if you decide to sell the shares, you can now profit from your investment. Here it is:

Selling price: 1,000 x 7.95 = 7,950

Dividend: 20

Gross value: 7,970

Deposit amount: 1,000 x 7.25 = 7,250

Gross profit: 720

The main factors here are:

1. As part of the company, you received a $ 20 dividend from the profit distribution.

2. When a company is doing well, stock prices tend to go up.

3. If the company did not perform well, there would be almost no dividends, and stock prices are likely to fall.

4. If the price of the shares falls below the price you bought, what you own will be less than what you paid for it. You will have only two choices. You either sell at a loss or hold on to your stock in the hope that it will rise again.

5. You did it because you expected the stock to go up when you bought it.

6. You own your shares and you can own them for as long as you want.

Binary options trading

The term “binary options” refers to the first two days of such a trade, when there are only two possible outcomes. Either you won or you lost – there was no other scenario. Today, there are many more complicated ways you can engage in this type of trading, but beginners should take the most basic ones.

Binary trading has always been a key asset. This includes an exchange, a currency, a commodity, an exchange index, and so on. We will use Ace Products Inc. as our main asset.

A key element of this type of trading is that you set a deadline in the future. It’s only a few minutes, an hour, a month and so on. Can be. Another important element is the holiday price. When you trade, you take a position that the holiday price will be at a certain level or higher for some time in the future.

If you think Ace Products Inc.’s stock will rise to $ 8 in 30 days, you can choose to call. You return your trust with an investment amount. Another trader on the trading platform will conclude that your forecast is wrong. It will offer one that will be a percentage of the investment amount.

You both sign a non-refundable options agreement. Upon expiration or termination of the contract, Ace Products Inc. or will be above the $ 8 you forecast. This way, you get back your investment amount and the extra interest you offer. If the stock price is less than $ 8, you lose all your investment.

When you make a call option in a binary options trade, you are not getting anything physical. If you buy a stock price option from Ace Products Inc., you have no stock in the company. Making a call selection means that you think the price of the part will rise to at least the specified price at the specified time.

For the sake of completeness, it should be noted that the share price of Ace Products Inc. exceeded $ 8, which is insignificant during the term of the contract. This is the price at the end of use.

With this type of trade, you are not limited to concluding contracts based on rising prices. You can also make contracts based on the value of the underlying asset. This is called the “put” option. It works the same way. For example, you can choose to have Ace Products Inc.’s price drop to $ 7.90 in 30 days. If you are right, you will be shown the amount of an offer you will receive. If you make a mistake, you will lose your investment.

Why are binary options better than investing in the stock market?

Hopefully it should be clear enough from the example above that this type of trade offers you a tool to make a quick profit. This is almost impossible with equity.

There are other factors to consider if you are buying or selling stocks. We talked about the proposal / proposal that was spread above. This is often called the bid / ask price. Because these two prices are different, Ace Products Inc. When you see a price that is the average of the sale price of the shares and the purchase price. The amount you can buy for a certain portion is always greater than the amount you can sell at that time. The difference between the two is the spread of the offer / offer.

Offer / offer spread can be quite significant and it is not uncommon to see a spread of 1 – 2%. This means that if you buy some shares in Ace Products Inc., the stock price must increase by at least the offer / offer spread percentage before you can profit from the sale of the shares. In addition, you almost have to pay an intermediary fee for both your purchase and sale.

This means that your investment will be closed for a while until you have a chance to make a profit. Another important aspect of investing in stocks is that there is no way to make a profit or break even if the stock price goes down.

If stock prices start to fall, you are faced with the painful decision of selling at a loss or waiting for the price to rise again. There is nothing you can do to improve your position. Another important factor is that you will have to invest large enough in stocks to make a decent return.

With binary options trading, you can get a good return on a number of small investments. You will know the results very soon and you will be able to compensate for the negative results relatively quickly. In other words you have more control over your investments.

Is binary options better than investing in real estate?

As with stocks, you own an asset when you invest in a property. You will have to make a large investment to buy the property, and it may be closed for a while. The cost of buying a property is high and there are many associated fees for owning / buying a property. You can expect to pay more than 10% of the purchase price in fees, duties and taxes. You also have to pay legal fees when selling the property.

All this means that you will not be able to profit from property investments until the price of your property increases by at least 10%. This means that your investment must be considered long-term and your capital is completely closed. As in stocks, if property prices fall instead of rising, there is no way to recoup the investment.

As a result, there are always risks in any investment. When investing in stocks, property or other standard investment instruments, there is no way to compensate for falling prices. Investments in these vehicles are long-term.

Investing in binary options trading gives you more control over your capital. You are dealing in a short-term market, so you have the opportunity to adjust if the trade is against you. You may have a chance to invest a small amount of money and make a good profit. Binary options trading is definitely something that a savvy investor should think about a bit.