Why should traders trade binary options?
Why should traders trade binary options?
Binary options trading is cost effective.
There are several reasons why traders trade options. The main reason is that a businessman has limited funds and wants to do as little as possible. For example, if a trader has US$10,000 and wants to buy 100 shares of a US$50 stock, he must pay US$5,000 and spend most of his funds on a single stock.
However, if he buys a $20 call contract (for 100 shares), his total outflow will be only $2,000. Therefore, the investor can spend the remaining USD 8,000 at his discretion. Thus, options trading allows traders to achieve the same level of profit as if they had invested in a more expensive market, but they spend less.
Why should traders trade binary options?
Options can protect an investor's investment against volatility.
Another reason traders trade options is that they can hedge their investments. When used correctly, options can reduce investment risk because they don't require as much investment as stocks. Gaps also do not affect options, so they are safer than stocks in this regard.
For example, suppose you buy shares at $50 and want to protect your invested capital from significant losses. To prevent a loss of more than 10% of your investment, you would place a stop loss order at $45. However, stop loss orders are only valid during trading hours. If the share price closes at US$51, but there is negative news overnight, and the share price drops to US$20 at the market opening, your shares will be sold for US$20.
The initial trade is below the stop loss order price of USD 45. Alternatively, a put option could have provided better protection. Unlike stop orders, options are valid outside market opening hours and provide permanent insurance. For this reason, financiers consider options to be reliable hedging instruments.
Why should traders trade binary options?
Options offer a variety of investment options.
A key advantage of options is their versatility in offering different investment options. Options can be used to create synthetic positions that provide multiple ways to achieve the same investment objective, which can benefit traders. Although synthetic positions can be very complex, options also offer a range of other strategic options. For example, some brokers charge high margin fees for short selling shares or prohibit it altogether.
However, options offer a solution by allowing traders to buy put options and profit from downside moves without such restrictions. This flexibility gives options traders more leverage than traditional stock trading.
In addition, options allow traders to trade only outside the direction of a stock's movement. They can take advantage of the so-called 'third dimension' of the market, such as fluctuations in time and volatility. Because most stocks experience major price declines, the ability to take advantage of slow markets can be critical to achieving financial goals.
Options give investors a more comprehensive set of tools for success, giving them the strategic choices they need to profit in any market environment. By using options, investors can overcome the limitations of traditional stock trading and access additional profit opportunities.
Why should traders trade binary options? – Review of brokers
Why should traders trade binary options?
