If you’ve just recently learned about binary options, naturally, a question may arise ‘Who makes money on binary options?’ and ‘What is a risk to reward ratio of this instrument?’
A binary option is really an interesting financial instrument of making money on underlying assets. On a regular stock or foreign exchange, prices are impacted by supply and demand whereas binary options don’t influence a price of an underlying asset. However, they allow a trader to make the highest possible yield on a chosen asset.
Just imagine a foreign or stock exchange trader.
An investor on a stock exchange makes a profit due to a difference between the buy and sell price. Binary options investor earns if there is a fact of a change in a price which means that how much a price changes doesn’t matter for a binary options investor , and what matters is the direction it takes either up (CALL) or down (PUT).
And now imagine what a stock exchange trader has to do for making a profit. He has to forecast both whether a price will fall or rise and how much it will rise or fall. And what if he needs to forecast just the direction the price will take? Undoubtedly, this makes trading much easier. Moreover, in case of classic trading, how much a trader earns depends on how much a price rises or falls. With risks equal, a binary options trader makes 70 percent and higher profit even if the price changes even by a 0.001 pip.
Therefore, binary options have an inarguable advantage over trading on a classic stock or foreign exchange.
Banks used to trade assets only on foreign exchanges and in some cases on the stock markets. Today, banks are present on the binary options market as well. The key task of all banks is to maintain economic balance as they are the largest institutions pumping liquidity. Also, only banks are entitled to trade on the foreign exchange market, and all brokers trading on the market are licensed by banks. You may have heard that retirement funds also participate in trading on a foreign exchange. Indeed, budget money doesn’t’t just stay still in accounts. This money is used in trading on the markets and returns a huge yield. This is the reason why you should not put money in a bank offering 10 percent per annum because the bank uses your money to trade on a stock market and returns back over 1000 percent and just 10 percent to its investor.
And why not to invest in the instruments that a bank makes a profit on?
These are large high-yielding private and state funds that invest capital in relatively risky markets allowing making a high profit. According to the polls, 80 percent of all millionaires’ and billionaires’ money participates in this kind of investment. This means that these funds return a huge yield.
For instance, Soros Fund Management made $1 billion on the USD/JPY fall in two months last year.
They account for the largest share of the market, but in money terms they present its smallest part. You and I are retail investors. And anyone of us can bite a piece of ‘a pie’ provided by banks, hedge funds,financial companies, investment funds etc. Traders who used to make money just on stock exchanges have already understood the advantages of binary options, and quite a few left for this type of trading.
To understand and make money on binary options is much easier than on classis foreign or stock exchange for an average man who has just learned what a binary option is. Besides, a profit on foreign exchange market depends on both a precise forecast and how much a price rises or falls.