Small investors can get much greater returns on their investments by using Binary options rather than traditional investment vehicles, here we explain how and why.
Trading stock prices with Long Term binary options
Binary options have often been viewed as a very short term trading tool – with trades lasting just a few minutes or hours. This was not helped by brokers promoting these types of trades above others. It is however, possible to trade over much more familiar timescales for small investors, and there are huge advantages to doing so.
Most investors who trade stocks and shares, take a reasonably long term view on their positions. Perhaps a few months, or even years. Binary options can be used over exactly the same timescales. The majority of brokers will offer ‘Long term’ options. What actually represents “long term” differs between brokers, but traders can certainly take a position on a share price for one, three or even six months. Some brokers allow trades to go well beyond a year.
Increased returns
So Binary Options can be traded over the same timeframe as traditional investments, but the returns from a binary option will be much greater – as is the level of risk management. This is best illustrated via an example;
Two traders intend to buy shares in BT, both are confident the value will rise over the next three to six months.
The first trader buys £1000 of BT shares, at a price of 480. To buy and sell the shares costs a total of £20 for the purpose of this example, including any margin or spread.
The second trader uses a binary option, with a ‘buy’ at 480, for just £100. There are no fees with the option.
Let us look at how both choices perform, both when the trade moves in the right direction – but also when it moves against the traders;
| Change | Return (Shares) | Return (Binary) |
| +10% | +£80 | +£95 |
| +5% | +£20 | +£95 |
| -5% | -£70 | -£100 |
| -10% | -£120 | -£100 |
Risk and reward
Our first trader would not generally contemplate losing the entire investment – it could have happened, but it was very unlikely. Even so, £1000 was effectively put at risk. In a falling market, the losses were still significant. The fees have a significant impact when the investment is around this level.
Our second trader, using a binary option, knew at the outset that the entire investment was at risk. They only needed to risk a much smaller amount however.
When the price moved in the direction the investors thought it would, the returns were far superior for the binary option – even though our example shows gains in the share price of 5% or 10% – very significant price moves over a few months. Any smaller increase would have reduced the returns of the traditional investor – but not for our binary options trader.
Holding On to Losing shares
Another advantage of binary options, is in overcoming an extremely common trading habit of many small investors – holding on to falling shares for too long. “It will come back“, “If I sell now I just lock in losses” – there are a whole range of reasons people use for holding on to a tanking share. Binary options remove that issue – if a trader was wrong, the option is lost. They move on to the next trade. In our above example, our traditional trader may have continued to hold after the 5% or 10% drop – and seen them drop even further. They could also have bounced back of course – but while they wait to find out, the £1,000 is tied up in the position. The losing binary options trader has moved on and still has funds to invest elsewhere.
There are, of course, strengths to trading share prices the more conventional way – investors may want to collect dividends, or hold shares for a longer time. They may want to include them in an ISA or pension fund. A more traditional investment would suit those types of investor. Small investors who want to speculate on a particular share price however, should certainly consider binary options, and spend some time researching if they might suit their trading style, and investment needs.
Read our in-depth reviews of broker trading platforms to see which offer the best long term trade options. The best (in our opinion) have been highlighted below – but different traders will have different priorities and investment needs, so it is worth checking out the brokers in depth. There is also the choice of opening a demo account – the ideal way to see if trading share prices via binary options can work for you.
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10Trade offer the biggest range of Long term options |  |
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uBinary have a long list of Long term commodity options | |
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Binary.com have by far the greatest flexibility of long term options – set your own specific expiry date | |