Risk Implications on the Binary Options Market

27 Apr 2013, 08:00

There is no such thing as a completely safe financial market. Making profit from financial speculations is only possible as long as you also subject yourself to a certain degree of risk. However, depending on the market on which you operate, this risk can be higher or lower. The binary options market is considered less risky than other similar markets because it provides a unique way of trading.

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You have to be familiar with how this market works in order to completely understand all possible risks. Knowing how to trade on this market will also help you understand why this is so popular and why numerous traders choose it for their operations. Trading binary options indeed involves some risks, but they are relatively easy to control and this makes the market perfect for new traders.

The term binary reflects the core nature of the options which are traded on this market. They are options with two possible outcomes. One of them becomes reality at the end of the contract which is known as expiry time. This means that a trade can either be profitable or not. In case you placed your trade on the winning outcome, you cash a profit which was established in advance with your broker. If you were wrong in concerning the outcome, you will lose the value of your contract which is known from the moment you place the trade. Both the potential profit and loss are known, so there is no room for big surprises.

The risk still exists because there is no form of financial speculation which is completely free of risks. However, the simple nature of binary options allows you to control this risk more effectively. The fix risk and reward are known from the moment you place a contract. Depending on them, you can decide whether you want to place the trade or not. This allows you to manage your capital easier and to also keep risk under control.

If you follow recommendations and you don’t place your entire capital on a single trade, you can manage your risk even better. It is advisable to operate with only 5% of your account per trade. This way, if something goes wrong and the market conditions don’t favor you, your losses can be manageable. Losing only 5% of your capital allows you to recover and you won’t be forced to exit the market. Cases in which players lost all their money and continued to trade enhancing their losses even more are not rare on financial markets. Investing rationally can prevent you from facing such scenarios.

Risks can’t be completely avoided on financial markets. There are still present on the binary options market, but they are controllable and easier to manage. Additionally, some brokers provide rebates which mean that in case a trade is out of the money, you still get back part of your investment. All these features make the binary options market perfect for new traders who want to gain experience.

 

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