It is well known that every investment comes with specific risks and there are many ways to minimize them, but not to avoid them completely. Trading binary options also involves some risks, and as an investor, it is important to know them because it can help to reduce the uncertainty.
Fixed profits amount is a risk binary options traders should be aware, because gains are limited, so there is no upside potential with this type of investment. On the other side, losses are capped too, so this risk is rather minimized.
The market risk refers to the variations of the market, that moves in different directions so often, with no warning. Even the potential market movements can be some way predicted, there is no analysis that can point exactly the future changes on the market.
Illiquid investment. Binary options are not considered a very liquid investment, mostly because they can’t be exercised when the traders want it. So they have to wait until the option expires and after that they can collect their profit or pay the losses.
Irregular market. It must not be forgotten that OTC markets are not regulated. So even if the trading platforms seem to be all right, there is the risk that some traders may practice some unscrupulous methods.
Very precise profit and loss points represent another risk of this investments. Binary options are measured by the slightest tick, so their value is determined by three or four decimal values. Therefore, even 0.0001 points can make the difference between the one who gains and the one who loses.
Investors don’t own underlying assets, so binary options are just a wager on an underlying asset direction. While some of the investors have no problem with this, the others see a potential risk in not actually investing in the ownership of tangible assets.
These being the risks, there is actually the advantage that they are known from the beginning of the investment. So the investor can analyse them well before making the decision of trading and he or she can even know how much will gain or lose.