When I saw the advertisement of binary options for the first time, I was both interested and surprised at the same time. They offered 1000 % profit per month. Seriously? We all understand that even arms trade, drugs trade and prostitution do not bring this much income.
However, let’s start from the beginning. My name is Jaroslav, and I am a lucky holder of a Master’s degree in Banking and Finance. As a person with such a high level of education, I understand that it is possible to earn substantial profit only if you are both experienced and lucky at the same time.
At first glance, binary options seemed to be a roulette game to me… I mean that the winning chance is equal to around 50%. This was the first thought. However, the further study demonstrated that I was mistaken.
So, binary options are easy to use, and it is quite simple to understand how they are working. The basis for this kind of options is the assumption “Yes” or “No”, and that is why they are called binary. We should ask ourselves: “Will the price for the underlying asset grow?”. If we believe that that the price of the underlying asset will grow, we buy the “Call” option; on the other hand, if we believe that it will fall, we buy the “Put” option. For now, everything seems to be rather simple.
Let’s assume that we believe that the price will grow and make the corresponding bet. Further, if at the expiration of the Option (this can be a gap of 1 minute to 4 weeks), the price of the underlying asset has increased, we receive a profit of 80% of our rate (the amount of the bid plus 80%), and if it has fallen, we receive nothing. Thus, it turns out that our profit is fixed, as well as our possible loss (as they say, “All or nothing”).
At this point, all the similarities between binary options and the roulette game end up. Binary options have their own rules and depend on the prices of the underlying assets (stocks, foreign currencies, raw materials), while the roulette game is entirely based on chance and luck. This means that knowing the probability theory, we can develop a strategy for winning the roulette game, but it will be completely useless for binary options. This is due to the fact that the markets for raw materials, foreign currencies or stocks are not stable (that is, the price can suddenly fall even with accelerated growth, and vice versa). All in all, the chances of making profit (or losing, if you do not have enough knowledge and experience), are much higher than 50%.
Therefore, we understand that we should not treat binary options without proper attention. If you really want to make profit, you may start with practicing the basic skills on Demo options by InstaForex*, with the help of which you can acquire all the necessary knowledge and experience, develop a strategy, and prepare yourself to making profit on the real account.
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