5 Common Fears Traders Have Regarding Binary Options
Fear and greed are issues and emotions every trader faces every day.
Fear can keep traders from making a trade, can cause them to hop out of a trade too early and miss out on profits -- or take a loss when the market has not even hit their stop loss, only to see the market rebound. Fear can also cause a trader to avoid trading a specific instrument due to inaccurate information. Many traders do not trade binaries due to fear regarding the following five reasons.
1) Payouts Are Low And The Odds Are Stacked Against You
Fact: Over-the-counter binaries primarily offer low payout binary options where the probabilities are at best 50/50, and with a less than $40 payout on a $50 risk. This is not the case on Nadex. On Nadex, a trader can put on a binary trade for $20 to make $80, or for $5 to make $95. The probability is lower as the instrument has to move more, but often that move can be a mere 10 ticks in the underlying or sometimes even less.
Related: What Is A Nadex Binary Option?
For a higher probability trade, a trader can put up $70 to make $30. Yes, the payout is lower, but if the market stays flat, moves in the trader's direction or even against the trader to a point, the trade can still be profitable.
Also on Nadex, the risk can be further limited by exiting when the price hits a certain target, $50 for example.This gives the trader the ability to profit in a flat market, a market that moves in their direction or slightly against them, giving them a greater than 50/50 probability and a better than 1:1 reward to risk ratio.
2) The Settlement Price Is Manipulated
Fact: Although it is true that, on non-CFTC regulated binary brokers, there have been cases of price manipulation and "slowing" the clock and other unfortunate unethical stories, this is not the case on Nadex. It is important to remember Nadex is an exchange; they are not on the other side of your trade. They are facilitating the trade between a buyer and a seller, between you and other traders and market makers
They are there to make a small exchange fee, nothing more, so they have no reason to manipulate the settlement price. They determine the settlement price on commodities by getting a data feed from Reuters and a backup from Bloomberg, two highly trusted sources for data.
On futures, they take the last 25 trades, right up to expiration, and average the middle 15 trades no matter the trade size. On forex, they take the last 25 non-sequential mid-quotes and average the middle 15 right before expiration. This is done a majority of the time on auto pilot.
The settlement price is used, so the price cannot be manipulated by simply firing off a of couple trades at the last second to move the price to be in the favor of one person or another. You will recall it is based on the middle 15 of the last 25. This requires substantial capital and risk all for some binary contracts price to be moved for a few seconds.
In addition, a settlement value can be challenged and they will promptly provide the Bloomberg screenshots, if requested, showing the exact trades and time stamps validating the settlement price.
3) It Is Difficult To Withdrawal Funds From A Binary Account
Fact: If you have read many forum posts, you have heard all of the horror stories about withdrawing funds and the bonus scams played by overseas binary brokers. With Nadex, withdrawing funds is easy. With Nadex, you login click My Account - Withdraw Funds, choose Wire or ACH and the amount.
Click Submit and it will be processed that day or the next business day, depending on the time submitted. The funds will be deposited promptly depending on the method chosen. All policies are laid out up front and are very clear.
4) Your Funds Are Not Segregated In A U.S. Bank Account Fact: If you are wiring your funds outside the U.S., or if you are wiring your funds to an account but the return withdrawal comes from outside the U.S., then your funds are not segregated in a U.S. bank account. It is illegal for non-CFTC or non-SEC regulated binaries to offer binary options to U.S. residents, so they are certainly not going to hold your funds in the U.S.
However, Nadex is regulated by the CFTC and are legally allowed to offer binary option trading to U.S. residents. All funds are held in a segregated account in according with the CFTC regulation at a top-tier U.S. Bank (BMO Harris), and the funds are not traded or leveraged in exotic investments.
In essence, your funds are separate from Nadex's funds and all trades are fully collateralized -- so your counter party risks are not present and you have preferred creditor status, as the funds are never listed as Nadex's funds.
5) The Nadex Platform is Too Complicated, So You're Better Off With "Call/Put" Binaries
While it is certainly true that many overseas binary platforms are very simple and easy to use, that does not make them wise. They offer what they call "call/"put" binaries. They use this to sound more legitimate, as calls mean going up and puts mean going down. After all, they don't want to call them over/under binaries. That would be too obvious!
Easy does not mean wise. It's also easy to put $100 into a slot machine and hit spin over and over again. The reason Nadex "seems" complicated is because you have optinons. You can actually trade on Nadex. You can choose different markets, different strikes, different expirations, and enter and exit before expiration multiple times.
In short, you have choices -- and choices make things seem complicated until you understand the choices. If you are looking to be a trader and not a gambler, you will have to get over the fact that you may have to learn a few things to be a trader.
Whether you decide to trade binary options or not, it is important for you to know the facts about binary options -- so you are not misled or misleading others. If you decide to trade binary options, you can choose a place to trade that is regulated, protects your money, is neutral to the transaction, and offers you the largest variety of opportunities for trading binaries.
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