We all know how quickly the 21st century world moves. New technologies and innovations have changed the way we think. We’re always looking for immediate results in whatever we do. The same is true in the trading world – it’s no surprise that short-term investments are becoming increasingly fashionable.

Since making the switch from hedge fund management to binary options, clients are always asking me to compare. “How effective are these short-term investments? Do binary options really work?” Yes they work, but I’ll let you in on a secret. There’s a catch. They work differently to traditional investments.

I often see those new to binary options making the mistake of presuming that the rules of regular investing apply here as well. But the large institutions who underwrite the assets do not make these options available to retail investors in the same way as traditional brokerages. The conventional methods of investing simply do not apply. The solution? We need to adapt our trading technique in order to profit.

Take stock trading. Investor Mr. Jones thinks that the launch of Apple’s iPhone 5 will increase the share price. AAPL costs roughly $670 per share, and he thinks that 3% is a reasonable profit target on the investment. 3% of $670 is roughly $20, so Mr. Jones’ profit per share will be $20. Hoping to make $2,000 in profit, he buys 100 shares, shelling out $67,000.

In contrast, Mr. Smith is a binary options trader. He also thinks that the Apple’s iPhone is going to be a success, and also has a target ROI of $2,000, but doesn’t want to expose $67,000. What if the iPhone underperforms? What if there is another Black Swan event? So Mr. Smith buys a day-long call trade on AAPL for $2,910, with the profit potential of $2,000. His risk exposure is limited to $2,910, and he has a profit potential higher than any stock could perform on any given day.

See the difference? In order to succeed with binary options, we need to predict the price direction and consider the expiry time. If the option is in the money at the expiry, regardless of exact price points, you make a profit of about 70-90%. Timing is crucial. When there is a short-term market movement, as traders react to the latest financial event, binary options come into their prime.

So give binaries a go. Include them as part of your investment portfolio to enjoy a better balance between managed risk and profit potential. Just be sure to adapt your approach first!

For further information, please feel free to contact the author [email protected]

Simon Sachs is a Senior Broker at Banc De Binary. Having worked at a variety of different Retail and Institutional Investment firms, he is most known for his expertise in the trading of precious metals, and is also passionate about foreign exchange. He is currently writing a book “Your Broker’s Broker” describing his insider experience of brokerages.