A binary options trading is a type of financial exotic choice where the payoff is either a fixed monetary value or nothing in return. The two major types of binary options are cash-only binary options and commodity-based binary options. In the cash-only option, you have to rely on the firm’s assets in case the said asset falls before the time the payoff date. On the other hand, the commodity-based binary options involve risks of depreciation. Here, the principal amount that is to be paid in the event of a decline is decided and based on the current market price.
Some people are engaging themselves in binary options trading for fraudulent reasons. They know very well how the system works, but they would like to take advantage of others’ ignorance and hesitation in making an investment decision. So they make up fake accounts in different brokerage firms and wait for the chance of getting the fixed amount. However, there are ways and means wherein you can avoid such scams.
First of all, you should learn how the binary options work. Before you invest in any option, you must know what the underlying asset is at the time of expiry. When the expiration date is approaching, the price for that asset should be determined and accordingly, you should place or sell your options. In binary options trading, the profits are calculated as the difference between the strike price and the underlying asset’s value at the expiry date.
It is also very important to study the underlying markets before deciding whether an option will fetch you profits or not. All financial markets are dynamic and a trader can make a wrong call depending on the way the markets are fluctuating. In this way, a new trader can make a huge loss by buying and selling at the wrong time. Therefore, to avoid such pitfalls it is advisable to keep yourself abreast of the current market trends before putting your money into the binary options.
Next, one of the common scams that exist in binary options trading is the pre-determined return. Many traders buy an option that has a pre-determined fixed amount that he or she wants to earn in the end. However, when the asset does not perform well, they lose their invested amount. The only way for them to get back the invested amount is by selling it or by getting out of the contract altogether. However, most people fall prey to this kind of scams because they do not have any idea about the actual return they can expect from the options trading.
Another major problem that is faced by many traders is the “vanilla options” scams. This basically refers to any trading strategy that is based on trading without any reliance on the actual underlying asset. Due to this, many traders end up losing their investment. For instance, if you trade with the strategy that predicts that the price of oil will fall over a certain period of time and traders do not act on it before the expiration date, you will end up losing the invested amount even if the price of the oil falls much lower than you expected.