While a self proclaimed expert in living frugally and saving money..I make no claims to be an investment guru. Currently most of my investments are passivly invested in the Vanguard Lifestrategy 80 Acc ‘fund of funds’ however there are many other alternatives avaliable. I’ve asked a friend of mine to contribute a few articals focused on more indepth alternative investment analysis. Enjoy:

 Binary Options Trading: Is It Worth The Risk?

These days almost everyone has a desire to get rich quick. Some choose to do so by taking part in various investment ventures. One of the most popular investments is putting money into the stock market.

Individuals take the time to study companies and can buy and trade stocks on the basis of how much profit they think the company will make. This investment is considered to be predictable and with time can garner a nice return.

However, not all areas of stock investments are as equally lucrative. Certain ventures lead individuals into more debt. Binary options trading could be considered to be one of these investments.

Its promises of low investments and high returns can make even the most practical individuals take a chance on this form of exchange. Lets take a moment to discuss exactly what binary options trading is, as well as its hazards.

What Is Binary Options Trading and How Does It Work

So what exactly is binary options trading? Binary options are mass-market financial instruments which will allow the trader to make use of a flexible approach without having to deal with all of the intricacies of the average trading options. (From: http://www.wikihow.com/Understand-Binary-Options)

Binary options may be used in order to hedge an individual’s portfolio or just for short-term financial gains. These particular options are said to give the individual an opportunity to enjoy all of the high payouts in very short amounts of time. It is this promise that has made binary options gain a significant amount of popularity worldwide.

Binary options contracts are usually available on various assets, which include: stocks, commodities, currencies and indices. When someone decides to trade, they will be expected to place a ‘put’ or ‘call’ option. ‘Put’ options mean that the individual will predict that the price of underlying assets are going to fall from their current prices at the time of their expiry, while ‘call’ options mean that an individual will predict that the prices will rise.

If the trader’s prediction is correct, then they will “finish in the money” and turn a profit. However, if their prediction is incorrect, then they will “finish out of the money” and lose their investment.

On certain occasions, the individual’s trade will “finish at the money” which means that the prices of the underlying assets are exactly the same as their time of expiry and at the time the person opened their trade. If this occurs, then the initial investment will be rewarded back to the trader–nothing loss and nothing gained.

 Shady Dealings

At this point, you may assume that there is very little risk involved–a person tries to predict whether a stock will rise or fall and if they are correct, then they double their money. It seems like a relatively simple and lucrative process. However, not everything is as it seems. This form of trading leaves out one crucial element: regulations.

One of the best parts about investing in the stock market is the system of checks and balances that is set in place by regulatory agencies. When the stock market plummeted in 1929, so did all of the public’s confidence in the United States markets.

Congress decided to hold a hearing in order to identify all of the problems as well as search for plausible solutions. Based on all of their findings, Congress was able to create the Securities Exchange Act, which led to the creation of the SEC, Securities and Exchange Commission. The SEC is a regulatory agency, which is responsible for protecting investors and maintaining fair markets.

Offshore binary options trading companies (which make up around 99% of all binary options companies) are not under the authority of the SEC. (From: http://www.optionsadvice.com/usa-brokers/)

In fact, they are not accountable to any form of regulation. Many companies take advantage of this fact and the unsuspecting investor has no one to report their unfair treatment to. The fact that they are not regulated has left the door open for numerous scams that all turn out in the broker’s favor.

In Conclusion

Though this form of trading is not a complete lost cause, the brokers that are involved can easily take advantage of those who are hoping to make sound investments. Binary options is often referred to as the wild west of trading–anything goes. Without the proper motivation of regulatory agencies, the companies that offer these forms of investment have very little incentive to deal fairly with traders.