Benefits of Trading Binary Options
Binary options have gained an increasing share of the derivative market for those engaged in active forex, stock and commodity option trading in recent years.
In addition to providing a potentially valuable form of diversification and risk management to a trading portfolio, some of the significant benefits unique to trading binary options are detailed further in the sections below.
Binary Options are Relatively Easy to Understand and Use
Those who wish to learn option trading techniques can benefit from starting with binary options due to the simplicity of their payout structure.
In essence, the premium paid for binary options will be the maximum loss the trader will incur on their positions, while the maximum benefit will be the binary option’s payout if the binary option expires in the money.
Take Limited Risk to Potentially Earn Limited Rewards
One of the primary advantages of purchasing binary options — as with just about any long option trading strategy — is that the trader will know the full extent of the risk they are taking in advance.
Another significant benefit is that they also know in advance how much reward they will earn if their option trading strategy turns out to be correct. This combination of binary option characteristics allows a forex or commodity trader to compute their risk/reward ratio on the transaction very easily.
Furthermore, to a trader, this unique limited risk and payout characteristic of binary options makes the risk of purchasing them a bit like having a guaranteed stop loss order in place that is only triggered if the option is out of the money at its expiration.
When considering the profit side, long binary options somewhat resemble placing a take profit order that can only be executed at the options’ expiration.
Shorter Trading Time Frames
Binary options may be more suitable for active traders due to the common availability of expiration time frames that are relatively short in duration.
While traditional options may take months or even years to expire, a binary option trading strategy can be implemented with a much shorter time period until expiration.
Depending on the specific binary option broker involved, common tenors for commodity and forex binary options can vary from a week to a day. Some option brokerage firms even offer binary option expirations occurring less an hour from the time the option contract is executed.
Accessibility to Smaller Traders
Another advantage of using binary options as part of a commodity, forex or options trading strategy is that they can now be purchased in relatively small minimum dealing amounts from option brokerage firms that cater to retail traders.
This small dealing amount or lot size can also be readily scaled up by more adventurous traders to increase the risk taken on a particular position or option trading strategy.
Trading Volatile Markets Using Binary Options
To a forex or futures trader, the guaranteed limited risk and payout characteristic of binary options can make their returns superior to placing traditional orders in so-called volatile or fast markets that often occur during key announcements and news events.
In essence, a set of stop loss and take profit orders entered in the market to be executed can sometimes suffer from slippage or being missed in volatile trading conditions.
Binary options have gained an increasing share of the derivative market for those engaged in active forex, stock and Commodity option trading in recent years.
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