Why Exercise Caution When it Comes to Binary Options?
A binary option is a contract type whose outcome depends on a yes or no. The yes or no prices depend on the whether a binary option rises above or falls below a particular amount. A number of binary options are listed on registered exchanges and are regulated by oversight bodies. This means that there are a wide number of binary options that are not regulated in the binary options market. It is noteworthy to know that many binary options operate through internet based trading platforms. The number of the platforms in the market has increased and so is the number of fraudulent promotion schemes on the binary options trading platform.
There have been many complaints regarding fraud associated trading associates. This has brought in the need to exercise caution when seeking to venture on binary options as an investor. The complaints in the fraud cases have been in relation to:
- Identity theft
- Manipulation of software to generate loss trading
- Refusal to credit client accounts
Identity theft has occurred in cases where internet based binary options trading platforms gather information of clients like credit card numbers, and drivers license data for other unspecified uses. Investors need to beware not to provide photocopies of drivers licenses, credit cards, or other personal documentation if asked by an internet based binary option platform.
Manipulation of software to generate loss trading has been experienced by some clients. In the complaint, the allegations have been that some internet based binary options trading platforms tamper with the trading software to mess up the binary options prices. An example in this case is the extension of the expiry period of the trading to a period when the trade becomes a loss to deny the investor a deserved gain.
Refusal to credit clients’ accounts has been a practice that certain internet based binary options trading platforms have practiced. In this matter, they fail to credit the client or fail to reimburse the funds when trading with the client. Those who fall victim are clients that have deposited funds into the binary options trading accounts after being convinced by brokers over the phone to deposit additional money in their account. It is not until later that one wishes to withdraw their money that the trading platforms cancel the clients withdrawal request. They go as far as cancelling any form of communication attempts through the phone and do not reply to mails sent requesting for withdrawals.
When proper procedures have not been followed in vetting a broker or a trading platform, an investor is most likely to make losses. Failure to be attentive in the vetting process could also land yourself on a platform that does not follow applicable laws and regulations of binary trading. Trading with a broker that violates regulations as set by governing bodies leaves an investor vulnerable in the binary option trading market.
In as much as the binary options market operates via the internet based trading platform, they do not necessarily comply with applicable US regulatory requirements. Clients should refrain from investing in a trade that they have little understanding of.
Binary Options are a form of trading that has received plenty of criticism. Among the criticism is the allegation that this form of trading lacks low risk trading variants. This contract in essence acts as an all or nothing portfolio. An investor is open to the probability that he could lose his whole investment at the expiry of the contract or gain rewards. It is possible to minimize on the risk exposure when trading in binary options as a form of investment. This can be done by:
Using free cash
Floating pair binary options
Using free cash
Minimizing risk through free cash is a means that investors choose to capitalize on. The investors are in a position to lower their risk exposure in binary options trading offerings attained from different trading platforms in the form of account credits which are hedged. This action has a multiplying effect to double volumes. A trader that is in a position to create a sufficient trade chum becomes free from ordinary withdrawal restrictions of bonuses if the hedging technique is well employed and watched.
Binary hedging can be put down as a means to reduce risk. Many investors have actually put in effort while trying to reduce the risk posed by the hybrid assets. They carry this out by first creating a position then attempting to exit that position in order to create proof that there is first time clearance between the strike price and the spot price recorded as the most current price in the market. With this, an investor is in a position to put forth a complete or partial hedge at the start of the trade and it is able to add up to a risk/reward situation that culminates in good returns when the final price at the expiry amounts to the figures which are considered the mid price between spike price and the hedge price. The binary hedge should also come along with a small loss or a push at a variable price.
Floating pair binary options
Giving up yields with floating pair binary options is a means to lower risks. An investor is able to use Binary Options trading in a manner that a floating binary option trade is used rather than using a standard mode. In this, a person is able to get an early close on the money contract with a number of brokers. The profits in this form of trade may be a bit lower but the benefits associated with it cannot be ignored.
An investor is able to get less yield payout at the time uses a deep in the money side of the floating pair Binary Options. However, the investor can be sure to make high returns in such a case. In normal situations, many investors are usually blinded by the possibility of achieving triple digit profits. In such cases, the traders need to make sacrifices in order to have a higher chance of attaining such gains. They have to use deep out of the money floating pair contracts. Running to floating pairs or prompt closure turns ones trading to review gains and surges at the expense of yield.