The Risks of Not Trading

This is the Hard PartI think we can all agree that having more money is the biggest goal that we have with our trading. We trade because we want to grow our money. The biggest risk of not trading then, is that we won’t be able to grow our cash.

But what about things like investing, or earning a return on savings or CDs? Doesn’t that help us grow our cash?

Yes, these do help, but maybe not in the manner that you think.

The main risk of not trading is the opportunity cost. Keeping your cash in savings might earn you a couple percentage points per year. Your money is growing here, and that’s wonderful, but your money isn’t growing at the rate it should be. Unless you are getting at least 3 percent per year, you are actually losing money. The rate of inflation within the United States stands at about 3 percent, and that means that your money needs to grow by at least this rate just to retain its value. Growth is great, but if it isn’t growing by at least this much, you are actually losing money. Investing in mutual funds and index funds can combat this problem, but even if you are gaining a return of 5 percent, you are capable of doing better.

Think about it this way: the best fund managers on Wall Street are making at least 10 percent gains each year. And that is with the hefty costs of doing business through traditional stockbrokers. Imagine if you could trade with the same level of success as these professionals, but with none of the costs? That’s where binary options come in.

Here’s how it works. Professional traders have access to the same exact information as you do, but they are typically better at analyzing it. They also have a lot more capital to work with and bigger teams that are able to diversify their tasks. For example, a large trading firm might have one trader that specializes in the USD/JPY pair, while another focuses on the EUR/USD. They might have a division just for looking at commodity futures, and that division is able to function independently from the division that specializes in tech stocks. That’s kind of an overwhelming amount of trading power, especially when you take into account that each individual involved probably has at least $1 million or more in purchasing power.

There’s no way that you as an individual can match that kind of strength, nor is there a need to try. However, by tackling this on a microscale, you can have the same kind of ability at growing your money as a huge firm would. What are the huge firm’s strengths? They are able to minimize costs because of their huge amount of capital, for one. What’s a $10 trading fee when you’re buying $200,000 worth of a stock? Moving up a penny or two more than negates that fee. But if you were to buy 5 shares of Apple at $100 each and pay a $10 fee to buy it, and then a $10 fee to sell it, you suddenly have paid almost 5 percent in fees! At $500 worth of stock owned, you would need to see the company rise by about $5 per share to overcome the commissions you pay and still make a noticeable profit. In some cases, this can take months or more.

Another strength is they have built in diversity. To overcome this second point, you need to specialize in a handful of assets. You don’t need a huge range of knowledge, just a large amount with a small number of assets.

With binary options, you can take out a $50 call option on Apple, wait 15 minutes for the option to expire, and if you’re correct in thinking that the company would go up, you have made a noticeable profit. Let’s say your broker offered you just a 70 percent return on the trade—you’ve made a profit of $35. No commissions were paid out of this, so that’s pure profit. Yes, you will have incorrect trades here and there, but a strong trading strategy takes this into account.