Currency trading has definitely grown of age, achieving a high degree of popularity across the global marketplace, but the binary options sector of the industry has been the hot topic of late, roaring to life just a few years back. This type of trading vehicle applies to a broader base of investors, allowing for transactions in both currencies, as well as in commodities, stocks, and a number of popular indices. Beginners are flocking to the genre because of its simplicity, built in risk management, and the potential to score huge gains in a short period of time.
In order to meet this demand, the binary option broker review community has been expanding dramatically, but it is finally beginning to show signs of maturity. It may still appear as the “Wild, Wild West”, but the space is getting crowded, and newcomers, as well as veteran firms, are having to respond to the competition in a variety of ways. The good news for traders is that risk/reward ratios are now approaching the same as can be had in traditional currency trading – a successful trader needs to book a 55% win rate on trades to break even in most cases.
Aggressive brokers are choosing the product differentiation method to attract their patrons, offering hot new one, two and five minute options. You no longer must wait hours for the results with these short-term options, but traders should be a bit wary. It is true that much of the appeal for binary options touches upon the gambler in all of us, but the shorter the term of the option, the closer the action begins to replicate pari-mutuel betting.
There is a reason that many of these brokers are located in tax-free zones that have large casino operations. The back office for binary options requires a similar approach to posting odds and weighing risks, thereby benefiting from the wealth of professional talent available in their chosen venue. Once a trader commits to a shorter term, he is actively choosing to rely on luck, rather than technical skills. The value of technical indicators traditionally decreases as timeframes are shortened. Market “noise” takes over, rendering many trading tools ineffective.
Another trend that is taking shape is for brokers to reflect “what’s hot and what’s not” on their respective trading boards. This process can also work to the broker’s benefit by guiding many traders to their shorter-term offerings, if they are indeed “hot”. Knowing where the “herd” is going is not necessarily the best indicator of where the greatest potential for gain may be found. The best advice in this case is to gather a few statistics on your own to verify if popularity equates to success. If you detect a pattern, then plan a strategy around what you find. As always, winning means biasing the odds in your favor.
Many binary option brokers are also shoring up their “best practices” due to the recent financial debacle in Cyprus, a financial center where many forex brokers have established operations centers. The two major banks on the island sustained massive losses on Greek bonds, necessitating the need for government authorities to seize all bank accounts. Brokers that deposited customer funds in offshore Tier 1 banks escaped the carnage, but others are desperately seeking additional capital sources.
Binary options by their vary nature require a different and proprietary operating platform. For this reason, your traditional forex broker may not be in a position to serve you, and you may have to choose a new broker from the multitude available.