Binary options’ trading is more popular among beginners, but is it really worth and can beginners earn money with binary options? If you are a novice investor who does not have any market knowledge about the underlying assets and no idea about technical indicators, it might be tough for you to predict the price movement of various assets accurately. Beginners who go unprepared to invest in binary options are undoubtedly prone to failure.
Beginners are interested in binary options trading because of the simplicity of the concept, easier accessibility through online trading platforms and good returns with limited risk. Many brokers try to attract beginners by promising unrealistic payouts and joining bonuses for opening trading accounts with them. Some newbies are lured by these false advertisements and get cheated by the brokers and lose all their money. There are plenty of unregulated and unlicensed brokers prevailing in binary options market who take advantage of the ignorance of novice investors. If you are a beginner, you should of careful research about your broker and ensure that it is regulated before you open a trading account with them. Brokers like anyoption that are regulated, offer good payouts and provide a wide range of underlying assets can be a good choice for any trader.
Also, new investors often get emotional while trading and start investing huge money on a single trade which can result in significant losses. To succeed in binary options trading, you should understand proper trading strategies and the use of technical indicators to predict the market movements accurately. Having a clear trading plan and adoption of strict money management principles are critical to gain success as a trader. Most beginners don’t have a proper trading plan and lack discipline in money management which can be dangerous while investing in binary options.
Your risk is limited in binary options since you can’t lose more than the amount you invest in each trade. Also, the profits can vary based on the payout percentage offered by the broker. As their name implies, each trade in binary options has only two possible outcomes. For example, let’s say you invest $100 in a trade and you bet against spot gold price speculating that it will reach above certain value by expiry time. Also, let’s assume your broker offers a payout of 70%. So, if you win the trade you will get your investment back along with a profit of $70 and if you lose the trade, you will also lose your invested amount of $100. So, the risk to reward ratio in this example is 1/0.7 which is the average risk/reward ratio you can expect while trading binary options with most of the brokers.
Only if you have a very good success rate or win-loss ratio, you can make the most out of binary options trading. As long as you don’t have a success rate of more than 70%, you really can’t be profitable in binary options trading. As a beginner, it can be really difficult to always predict the market movements correctly since you might not have good knowledge about the market situation of various underlying assets. A beginner can’t really expect to have a success ratio of more than 70% since in reality; most beginners fail 80% of the time in binary options. Some beginners are influenced by emotions and start investing way too much money on a single trade which can be disastrous.
Also, beginners will not have any idea about asset allocation and investing in a diversified portfolio to minimise risk. They will blindly invest in the same set of assets which might not result in success all the time. Experienced investors will adopt technique like risk-reversal or hedging strategy to minimise their losses. Novice traders are not aware of hedging technique which is important to limit your risk.
Experienced investors in binary options make use of signalling services and technical indicators to speculate the market movements accurately. Some of the popular indicators used by experienced investors are Bollinger bands, Relative strength Index and MACD. A beginner might not be aware of such technical analysis tools which are required to speculate the movement of underlying assets in binary options. One advantage for beginners is that availability of social trading network with many binary options brokers. A beginner who joins the social trading network will be allowed to follow and execute the successful trades of other experienced investors. So a beginner will be able to invest in binary options even without having any market knowledge. But there are certain risks associated with social trading as well since you can’t rely completely on any single trader. There can be cases where the person whom you follow can go wrong, and you might also lose your money by copying his trades.
Considering all the above points, binary options are not a good choice for beginners who don’t have any market knowledge or understanding of technical indicators. It is only suitable for experienced investors who are aware of various trading strategies and use of technical indicators to predict the market movement accurately. Beginners should spend time in acquiring these trading skills before investing money in binary options. They can either open a demo account to practice trading without real money or join any social trading network to understand the strategies used by experienced investors.