Have you heard about binary options? More and more I get questions from people asking about this new opportunity. Is it legal? Is it safe? Should you consider it? Today we will go over the binary option world and explain the pros and cons.
First of all a binary option is a "yes" or "no" bet on the price of something. If you think the price of gold will be over 1250 by some specified time then you can bet on this. If you are correct you win. If gold is at, or under 1250 at your expiration you lose your wager. So why not just make these bets using normal options? Well, you are offered many different expiration's that you would not normally find on the traditional options markets. If you want an expiration that is 20 minutes away you can do that. If you want an expiration at the end of a Tuesday you can choose that as well.
The Pros:
By far the best thing about binary options is the ability to know your risk ahead of time, and actually be locked in to the risk. See in the traditional markets you can buy 1000 shares of Apple (NASDAQ: AAPL) and say you will get out at a stop loss amount but you can always change your mind. Ever done this? With binary options you can change your mind and get out early but your losses will never exceed the initial amount you risked.
The cons:
Liquidity is probably the biggest negative at this point. Due to it being so new there are few market makers and not as many people trading them. Because of this you may find wide spreads that a normal trader would not be used to. With a little practice you quickly get a feel for placing orders and eventually you learn to live with it.
All in all binary options are a legal transaction that take place on an exchange and are regulated. While it is still a new concept, in the states it is something that has caught on quite rapidly.