There is a lot of discussion going on about Binary Options as a means of getting additional income in South Africa and as a result, Binary Options trading is getting more and more popular. Several times, it has been portrayed as a solution to all your financial needs with the possibility of making tangible sums of money in minutes, but in reality, is this the case? Let’s explore the real aspects of Binary Options trading and all there is to know.
What is Binary Option
A binary option is a financial derivative in which the investor forecasts the price direction of an underlying asset such as stocks, commodities, indices, currencies and even events. If the forecast is correct, the investor earns a fixed sum of money. If not, the amount he loses is also fixed. Basically, a trader/investor would have to foresee if there would be a rise of fall in the value of the underlying asset within a certain time frame and make predictions accordingly.
Popularity and Regulation of Binary Options Trading in South Africa
Binary options trading is becoming increasingly popular in South with a growing number of people getting involved. There has equally been a comparative increase in the number of brokers offering this option of trading.
The activities of Binary Options brokers fall under the regulations of Financial Services Board (FSB) which is the governmental entity that monitors organizations that are in the field of financial services with the aim of ensuring that consumers’ rights are protected.
Key Things You Should Know About Binary Options Trading
As with any other type of trading, there are key things you should know about binary options before starting to trade:
- Binary Options Work With Stocks, Currencies, Commodities And A Lot Of Other Assets
Binary options are considered a financial derivative. What this means is that each trade has an underlying asset in the form of stocks, commodities, currencies etc. However, you are trading on the price movements associated with these instruments and not on the instruments itselves.
- You Can Know your Profit/Loss Beforehand
Unlike the regular day trading, in Binary Options trading, you get to know your profit or loss before you make a trade
- Strike time, Strike Price and Expiry Time Are the Key Components you Should Familiarize yourself with
A strike time is basically the time at which a trade was placed and the amount placed is the strike price while the expiration time is the moment when the binary option expires.
Let’s say the trader chooses an instrument like Microsoft stock and the binary option has an expiry time of 2 hours then, he predicts if the stock would have dropped or increased in value at the end of the 2 hour period and If the stock goes in the predicted direction, the investor earns a profit and if it goes against the direction of prediction, a loss is recorded.
- You Can Only Lose Up to Your Initial Investment
There are no margins or additional losses in binary options trading. Thus, you know how much money you will be risking before committing to a trade.
- Don’t Overlook Risk Management
In any type of financial trade, risk management should always be taken into consideration. The rule of thumb in terms of risk management is to not invest more than 2% of your total capital on any single trade. That being said, if you have $500 to invest, don’t invest more than $10 on a trade. This will ensure that you will have enough trades to recover in case of an early loss.
- Binary Options Isn’t a Get-Rich-Quick Scheme
Unlike what you may have heard from many dubious brokers, you won’t get rich overnight with binary options. There is a learning process to binary options and it could take some time to master it depending on your commitment.
Why Research is Very Important in Binary Options Trading
A good trader needs to understand the risks and the rewards involved in these often-misunderstood instruments. To achieve a level of success, a certain amount of analysis (both fundamental and technical analyses) should be done especially with respect to how trending news in the company, industry, country or region might affect the price of the asset. This helps the potential investor to predict with some level of certainty, the foreseeable price direction of the financial instrument of interest.
Importance of Selecting a Reliable Broker
Many binary option “brokers” have had history of questionable operations, data and price manipulations, promising unrealistic results, refused or stalled withdrawals. In such scenarios, there is no real brokerage in its sense rather, the customer is unwittingly trading against the broker. To advise traders against such unethical behaviour, services of platforms like binaryoptions.org.za which review and recommend brokers based on various standards of measurements are usually helpful.
Here are six steps to take when choosing a reliable broker:
- Capitalization and Trajectory
It is better to choose a broker that has a rather large capitalization. The amount of capitalization almost always attests as to the reliability of the broker. This is because capitalization shows a solid business with good capital and ability to offset risks. Also, ensure the broker has its share of experience in the field.
- Assets Offered
The more assets offered, the more trading opportunities you will have to diversify your risk.
- Check Out Terms and Conditions
Also, read the terms and conditions of your binary options broker. This is especially true for brokers that offer bonuses. These bonuses many have many restrictions. This way, you can choose the one broker that favours you the most.
- Customer Service
As with any other service, you want to be sure you get help when you need it.
A payout that ranges between 75% to 90% in this industry. The higher the payout, the higher your profits
Binary Options can be a good way to generate additional income if research and analysis is done well but as with any other type of business activity, it is important to prepare oneself beforehand before engaging in it.
The activities of financial service providers in South Africa are regulated by the Financial Services Board (FSB). Ensure that any broker of your choice is regulated and has valid FSB licence and registration number, this way, you are guaranteed an acceptable level of safe trading and transparent deposit and withdrawal process.