ADVANTAGES OF BINARY OPTIONS
- No risk of being stopped out (via a stop-loss order)
- Controlled Risk – The percentage reward is known from the outset, as is what the investor stands to lose i.e. the exact amount they placed. In ordinary trading, a gap in the market or missed stop loss can leave exposures to a much greater than expected loss.
- Easier, simpler – The investor only needs a sense of direction i.e. ‘Will the exchange rate increase/decrease in half an hour?’
- “In the money” – For a profitable trade to take place there is a need for price to close in-the-money, a winning trade will receive the entire payoff, even if was ‘right’ by a single tick.
- Protection – An easily manageable option to take if a trader has an open position elsewhere in currency, stocks etc. Utilising a Binary Option can potentially eliminate a further loss elsewhere.
- Punctuality – Binary contracts are being issued around the clock, allowing traders to trade on multiple time frames. There is always an expiration time arriving, which constantly yields new opportunities for binary traders.
- High level of leverage
- Very short time frames. Some binary options open and expire within five minutes and a large number of binary options only take a day to expire.
- Allow traders to take positions that are low risk yet carry very high potential return.
DISADVANTAGES OF BINARY OPTIONS
- Large transaction costs.
- Spreads tend to be very wide which is passed onto the costs of entering in and out of trades.
- The pricing in binary options markets are not transparent and can mean that clients are overcharged for their underlying exposure.