While binary options trading can be attractive for a variety of reasons, there are a few drawbacks that must be acknowledged.
The reward is finite. The most a trader can make is the predetermined payout amount. This is not like the stock market, where people can become millionaires overnight with a single purchase.
The risk is sometimes greater than the reward. This is true of all types of financial trading. Because this type of trading centers on speculation and not the assets themselves, the risk can be high. This inherent risk can be overcome when traders become familiar with trends in the assets they are speculating upon. However, it can be a definitely be a disadvantage for people new to both binary options trading and the assets they wish to purchase contracts on.
Binary options trading is less regulated in some areas outside the U. S. This can be an issue for traders who wish to speculate outside the U. S. market and are not aware of the legal differences. It’s important to be familiar with the laws of any nation in which you trade, so you will be protected and also so you will not accidentally commit a crime.
No assets change hands. The binary options trader is merely betting on how the value will change. This can be a benefit and a drawback at the same time. There are no assets to liquidate, and the market is trading entirely in cash. However, some people prefer to buy an asset rather than to speculate on futures. Owning an asset, even one that may someday be without value, makes some people feel better about the risk of losing money in a market.
There is less flexibility. Because contracts have set times, traders cannot simply wait a while longer if their asset has failed to earn them money and is expected to change direction in the future. The contract expiration time, the price, and every aspect of binary options trading has been determined ahead of time.
