Binary options go by various names. Some call them all-or-nothing options, while others call them fixed return options (shortened to FROs) and those dealing in interest rate or forex call them digital options. As the different names would suggest, they refer to financial options whose remuneration is either nothing at all or fixed monetary. They are loosely estimates of how certain assets will perform and then give you (the trader) an option to either “Call” or “Put”. If a trader foresees an increase or upward trend in asset price, he makes a “Call”. On the other hand, if the trader foresees a price decrease, then the trader makes a “Put” option investment. Binary options are often traded over virtual platforms like the internet or other such unregulated platforms.
CFD stands for “Contract for Difference” and it refers to a trade contract involving two parties; the buyer and the seller. This specific contract requires one of them to pay the other the difference between an asset’s current trading value and its projected future value. They could be very profitable but are high risk investments too. Their biggest advantage is that they are derivate products meaning that traders can trade on asset movement without personally or physically owning the assets shares on the platform. Also they do not attract stamp duty as tangible assets would; therefore this makes them extremely tax efficient.
When using binary options as insurance for CFD trading there are many benefits to ensure profitability. First and foremost is the ease with which trading happens. To begin with, the set up process is very easy. You can sign up easily with a binary broker and just as easily, use your account as insurance for CFD trading. Such assurance of ease of trending makes it a good guarantee for CFD trading. More to that, trading is based on one’s ability to predict market trends; this means that if a trader is well versed with the specific underlying asset, then they can comfortably predict which way the market sways. This makes it very easy to use it as insurance, especially if you are confident about your specific trade commodity. Another reason that it would be preferred as insurance is because binary options are basically number games. Probability of either a call or put is 50-50 percent. Therefore one needs to be right about one prediction for above 55 percent to make reasonable return on investment.
RISK WARNING: YOUR CAPITAL MIGHT BE AT RISK
Unlike other options of trading (like some stocks) binary options have considerably higher return on investment. Binary options when used as insurance of CFD trading can round up to sixty to seventy percent profits. In addition to this, there are a variety of markets that binary options can be active on, even with one single account. This means that they can be used as insurance for various traders too.
Also, there is considerable flexibility in trading strategy. There are no major rules that a trader needs to follow to excel in this. All you have to do is be knowledgeable on the specific market commodity of interest and then predict future market trends accordingly.
As exciting as these trade options are, it is important to be very vigilant and keen as you use binary options as insurance for CFD trading. Like any unregulated internet businesses, they are prone to fraud and unscrupulous business men who have been known to take advantage of uninformed traders. To protect oneself from this, it’s advisable that traders leverage on what they understand best and reduce exposure to risk. Also, have a sober mind (or head) as you trade. Also, it would be more than advisable to trade or invest with a regulated investment broker. Lastly, do not be over zealous or be greedy for too- quick gains. Instead, maintain sobriety and think logically as you use binary options. Shy away from situations that encourage hurried decision making or those that encourage intuition or emotional decisions. Still on sobriety, keep a cool head on the outcome of the investment. Since there are only two outcomes, keep in mind that if you win, you win. But if you lode, that loss is valid and true.
All in all binary options are insurance for CFD trading that are worth looking into. Like all investment ventures, this also comes with both the positive or negative side. For anyone keen on details and with a knack for market trends, then this is a lucrative investment option.