What are binary options and why we don't recommend them?

What are binary options and why we don't recommend them?

September 30, 2022
2 months ago

What are binary options and why we don't recommend them?

As a fan of the stock markets, you have probably heard of binary options. It is a type of product that is not without controversy and we are going to talk about it in this article so that you can learn more about it. But first we give you a preview, if there is something that characterizes the binary options is its very high risk.

What are binary options?

From this blog we always insist that asset trading has nothing to do with gambling or casinos. It is an activity that takes a lot of study and knowledge. Now, in the case of binary options, we could summarise it directly as betting that an asset is going to go up or down.

Indeed, it doesn't sound like a very orthodox way to trade.

Binary options bet on whether an asset will go up or down. On the other hand, their execution times are very short and can be as short as 1 minute. We could say that it is a Russian roulette. There are two types of system, "cash or nothing", also called "all or nothing". You earn an amount if at the expiry of the option, it ends up trading above what you paid for it, or nothing in the opposite case. The other system is "asset or nothing", in which you can earn the value of the price of the underlying asset, which can be stocks, bonds, currencies, indices and commodities. In addition, there are binary options that are more complex. For example, that an asset reaches a particular value. These are moves that generate high returns, but at high risk.

Why are binary options so popular?

Quite simply, they are products that require a high investment to get started. But it is also their main problem, because whoever starts trading binary shares and is lucky, yes, we have to use this word, is going to be motivated. As a result, you will see that you can get huge returns, up to 90 %. But there will come a time when this trend will break, and just as you make a lot of money, it will also dissipate. Yes, in binary options it is very difficult to stop being tempted to make more money.

Therefore, the popularity of binary options is high and the danger is that they are perceived as a gamble, and that many traders have encouraged this feeling. When something to do with the stock market loses its analytical sense and is seen as a game of chance, there is an obvious danger. This is none other than that people without the proper knowledge get close to these products and start trading. Usually with dire consequences for them.

Why many countries have banned binary options

Indeed, many countries have frowned upon this type of trading. In the case of Spain, the ESMA, or European Securities and Markets Authority took action in 2018. This resulted in the Spanish Securities and Exchange Commission, the CNMV, enforcing a ban on retail traders, like you, from trading binary options. They are not products that are characterised by transparency, so the risks involved are very high. Too high in the case of a person who does not have the necessary knowledge. Even if you do have the necessary knowledge, as it is an all-or-nothing product, the chances of being able to act analytically are diluted.

What are the risks?

It is obvious that losing a lot of money in a very short time. When someone has traded binary options in the past, they did not know exactly what they were doing, and they did it out of an interest in making a lot of money, nothing more. In addition, those who promoted binary options were in a roundabout business, the more the investor lost, the more they made. As a result, there was even a spiral. They tried to cover those losses by trying to execute orders in desperation, and the consequence was usually identical to the one that had produced that situation.

In many cases, people have gone into debt to try to cover those losses. As a result, they have ended up with significant losses that they now have to pay. So, the siren songs of very high returns are nothing more than a call for your capital to suffer a disaster. Not because this money won't come, but because sooner or later you will lose it.

Sensible, cautious trading that takes into account our possibilities will always be the best way to avoid problems, and there is no doubt that binary options have caused many of them.

In short, binary options are a very easy way to make money, but also to lose money, so the most sensible idea is to trade in other ways where chance is not involved. Contracts for difference, currency pairs, futures trading or commodities are all instruments that you have at your disposal for trading. The money may not come quickly, indeed it may not come at all, but you will be in a system that allows you to trade logically, consistently and with less risk.

If you are thinking of investing in cryptocurrencies, we recommend joining NAGA, which offers a NAGA account. DEMO account with $10,000 so that you can do the testing you need to do, before using real money.

In addition, you can earn money by helping others earn money, sharing your trades, or copying the trades of more experienced traders. Discover the benefits of social trading.

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