Binary trading has become an extremely popular way of trading on the financial markets without the need for large amounts of capital or even extensive knowledge of the markets. The basic premise of any trade is simply to predict the direction the price of an asset will move in. Your prediction will need to be tied to a specific time frame and, if you are correct, you will receive an agreed rate of return on your investment. Unfortunately if you are not correct you will simply lose your investment.
The fact that it is possible to start trading with just a couple of hundred US dollars and is the potential to generate significant profits has made this type of trading a very appealing options to a wide range of people. Perhaps one of the best features is the ability to trade in both short and long term options; this means a trade can last as little as thirty seconds or as long as several months. The rate of return you receive will reflect the risk involved. In effect you can generate profits very quickly. However, trading at this speed makes it very difficult to accurately assess each option and has led to many people treating binary options as gambling and not a serious financial investment opportunity.
Unfortunately, these types of claims are inevitable as some traders expect to win big and instead lose their funds. This reflects the fact that although you can trade with very little knowledge it is advisable to understand the markets and build a strategy; this will increase your chances of trading successfully.
How the Brokers Make their Money
Every type of financial investment involves one person making a profit at the expense of someone else; whilst this might not be an option in a perfect market it is the way the world currently works. In effect, when you win a trade you are taking money from the broker and when you lose they are taking yours; you are effectively giving them a means to make money. However, this does not mean that the broker is attempting to make sure you lose every time. This would be a personal and ridiculous approach. If you never win you will cease trader and they will lose the opportunity to generate funds through you. Instead, they must work on the assumption that they will win more trades than you as the odds are balanced slightly in their favor.
In truth a trader only needs to win approximately fifty five percent of their trades to break even; this shows how finely balanced the broker / trader balance is. However, the best binary option brokers does not need to manipulate the markets in order to generate profits; it is simply not possible for a trader to be right every time; this coupled with greed and ambition allow the broker to win more often than it losses; thus generating its own income.