Hey everyone, thanks for joining me for the first post in the CNA Finance Binary Options Corner! As I promised, we’re going to not just talk about the benefits of trading binary options here, we’re going to talk about the dangers. The simple fact is that everywhere we look online when researching the dangers of binary options trading we tend to see posts that say something like….
If you do your research trading binary options isn’t dangerous at all!
You know what I’ve got to say to that? Bullsh*t! The first thing you all need to know about binary options trading is that it is dangerous! Don’t get me wrong, I trade binary options and I make pretty good money when I do; but that doesn’t mean that I don’t take on a ton of risk when I trade. With that said, because I thought it was so “risk free” when I first started, I made much less money than I should of. Thankfully, my blatant disregard for risk didn’t cost me any of my principal dollars; but it did cause my returns in those beginning days to be rather small.
What Are The Dangers Of Trading Binary Options?
Before we get into the dangers of binary options trading, read the quote below. This is a quote that you will see on most binary option broker websites. The same websites that those bloggers seem to be saying aren’t risky whatsoever to work with…
Risk Warning: All information in and on this platform is solely for informative means, and is not intended to be taken as financial advice on any issue or subject. No users, traders or site viewers should act, or not act, as a result of this broker’s content without first consulting the suitable financial expert advice. B.O. Trade financials and its affiliates publicly repudiate all liabilities related to, or resulting from, any acts, taken or not, founded on any or all of the content on this site. It is recommended that traders should know that Binary Options trading is known as a ‘high risk’ monetary activity that has the potential to cause the trader to lose part of, or all of, the invested funds in a relatively short time period. All traders are kindly advised to decide if this activity will fit their needs, if they have the fiscal resources for it and if this is a worthwhile personal undertaking.
OK, so I think I’ve made my point here. At this point, we all know that binary options trading can be dangerous, but why? Here’s a list of the biggest dangers you face when trading binary options…
Bad Brokers – The binary options market is a highly unregulated one. As a result, there are a ton of bad brokers out there. One of the biggest mistakes that you can make when trading binary options is working with a broker that’s going to do little more than take your money and run. I’ve read so many reviews that said something like…
I was supposed to get my deposit so I stopped trading until I received it. Then I got an email saying that because my account was inactive for 14 days, my $5,000 balance would be held to cover any costs of the relationship? What!!!
Don’t be one of the several victims that fall prey to bad brokers every year. Make sure to thoroughly review the services provided by a binary options broker before signing up.
False Predictions – As a binary options trader, it’s your job to predict what’s going to happen to the price of an underlying asset. The bottom line is that I don’t have a crystal ball that can tell me the future; and I’d be willing to bet my last red cent that you don’t either! The idea that you will be right 100% of the time when making predictions is absurd. So, you’re going to lose some trades, it’s just how the market works. As a matter of fact, at general return rates and out of the money losses, your predictions have to be right 55% of the time for you to even break even. Although, you can increase your chances of being in the money through research, you have to accept the fact that no matter what you do, you’re going to lose here and there.
Adding Risk On Risk – Binary options trading is already considered to be high risk, but there are also ways you can add risk to your trades. I know, who would want to do that, right? Personally, I did that! It was one of the biggest mistakes I made. When trading binary options, you generally have a 60 second trading vehicle. This means that it’s up to you to decide what’s going to happen with the asset price within the next 60 seconds. What I didn’t realize when I started to make these trades was how volatile the market is in short spurts. I soon found that short term trades are incredibly risky and that beginners shouldn’t even try to trade them…So, learn from my mistake there.
The reason 60 second trades are so risky is because they give such a little amount of time for your predictions to come to fruition. Let’s use rain as an example. If I was to predict that it would rain within the next 60 seconds on a hot summer day, chances of me being correct would be slim to none. However, if I predicted that it would rain sometime over the next year, I would hit the nail on the head. Even in the driest climates around the world, it rains at least once per year! So, by making short term trades, you’re simply setting yourself up for failure in most cases.
Emotion – Because binary options trading is naturally more risky than any other form of investing, it’s also much more emotional. When trading binary options, it’s incredibly easy to get sucked into the trades emotionally and lose everything. So, if you’re going to trade binary options, it’s important that you keep your emotions in check.
If anyone ever tells you that binary options trading isn’t dangerous again, tell them they’re wrong. When you trade binary options, you’ve got the opportunity to earn up to 80% returns in as little as 60 seconds. With such high returns, it only makes sense that the trades would be high risk. The good news is, there are ways to manage your risk and loss exposure. We’ll talk about those in Monday’s Binary Options Corner post!