The term binary is used here to stress the fact that people using this form of securities are assured of a return or none at all. It must be said that there is a cost associated with handling the options and this is relatively small as compared to the returns that can be had from the use of the instrument. As to the functional aspect of the binary options, it is more to do with how the individual gets to apply them in practice and never as though an assurance to the return can be made at all.
With the proper use of the options, it is possible to control the type and extent of risk that an investor or the trader is exposed to at any point of time. In many ways, the options are a good insurance instrument that can be used to de-risk a portfolio. As it often happens when a de-risking action is initiated is that the use can turn speculative if the amount of offset is higher than the need of the situation.
A key factor with the use of binaries is the use of leverage. By leverage, it is meant to denote the powering of the capital at the disposal of the investor to gain a return. The other term used to describe the leveraging factor is trading on margins. That is the trader or investor pays a fraction of the actual contractual value of the instrument each time a position is taken in the instrument.
What is to be noted here is that the use of the binaries enables the operator to expose himself to a higher amount of securities than possible with the plain cash in hand. Often the exposure is multiple times to the cash deployed and hence the term leverage as applied to the trading in securities.
Money has a strange effect on people that they tend to lose their thinking ability. It is for this very reason that people needs to be careful as not to over extend themselves while trading in securities. The temptation to try to take on huge risks to ensure a better return is one of the hallmarks of those dealing in the capital markets. One of the features of the binary options is the low capital needed to take up a trading position. This would enable the folks with lesser means to take to investing but on the flip side, the provision does expose the investor or the participant to huge amounts of risk.
It is the wise investor that would know when to call it quits. This would be the single mantra that is bound to yield results when dealing with the options trading is concerned. As important as initiating a trade is the need to get out of a trade.
People have to understand the concept of de-risking a portfolio. It must be differentiated from investment avenues most of the time. By de-risking, it is more of an insurance that the investor takes out to keep his profits locked in. So it is important to understand the markets well to know where to limit the losses and to cash in on the surplus generated.
Often people in their rush to take out insurance would tend to overdo the part. Thus the act of de-risking turns speculative. The shrewd investor would try to keep the focus to the investment and understand the very instrument that is being used. The capital markets are rather unforgiving to mistakes being committed and there is no way a mistake can be reversed. Contracts are sacrosanct and enforceable no matter how minor it might seem to be.
The practice of taking out the exotic binary is as colorful as the very term makes it out to be. Here pairs of binary options are traded simultaneously to ensure that the space to make money is broadened. The trader aims at increasing his chances of making money by the use of the exotic options.
The single most telling aspect of the exotic binaries is the use of opposite contacts to each other. Here it must be stressed that only those folks that do understand the capital markets well should be taking to this form of investments. There is a heightened chance of losing money through the binary contracts but on the flip side, the amounts usually tend to be rather small too. But if the loses get to be on a regular basis, then the person could end up make substantial loses than profits.
A factor of the capital markets that the old timers insist on telling over and over again is that there is no guarantee that a person can make money on the exchanges. This would be truer of the speculators that try to take advantage of the temporary demand and supply equations of the securities. And with the securities markets, it is an established fact that people rush in when the returns seem obvious but this would also be when they have to be cautious as well. The chances of making mistakes and hence loses are more at the times of high exuberance than otherwise.
It would be the wise operator to figure out what works than what is sure to lose money. For most successful market operators, they do have their personal methods that have been proven effective. It would thus be advisable to find what works for the individual than try to follow what has given results to someone else.
Finally, it must be emphasized that trading in options do not guarantee a return and it is the investor that understand the risks that he is being exposed to no matter the instrument that is being handled, that makes the money in the final reckoning.