That online trading is not directly comparable to investing should actually be clear, because online trading is more about short-term trading techniques and high returns, while investing over a longer period of time should result in a low return. In this article we want to approach the risk of both types of investment. What are the differences between the two types of investment? Why is online trading less suitable for the major investor (and vice versa)?
Risk differences between the two investment types
Those who invest properly have a constant return over a longer period in their heads. As the investor plans this period, he assumes a low risk of his investment or only invests in investment products that have a lower risk. Because a long holding period also means that you are exposed to a risk over this period.
Products that are less risky are therefore suitable for investors. The emphasis is clearly on the structure, because the common asset classes are also traded for binary options, only the structure of the products is different.
Products that are bought and sold 1: 1 are therefore suitable for investors become. That means you spend as much on a stock as it costs and not less. This effectively eliminates the risk of the investor completely losing his capital, because normally a share cannot fall to zero - unless the stock corporation goes bankrupt.
Of course, by analyzing the company, you try from the start to eliminate the risk of bankruptcy by choosing stocks whose companies are already very established. On the other hand, this also means that the return can turn out to be lower in the end, since such stocks generally grow more slowly in price. But that doesn't have to be the case.
In the same way, the investor could also invest in real estate and hope that he can sell it at a later date for more money. Of course, large investors can also take out a loan to make the investment. However, this is usually only done for certain asset classes, such as real estate.
Binary options trading, on the other hand, is not suitable for the large investor, since the large investor has a completely different understanding of risk than the online trader. Although both can trade the same asset class, the online trader is not concerned with long-term investing, but wants to benefit from short-term market movements.
Also, trading binary options is not 1: 1 and requires only a small amount of capital, This in turn increases the risk, but also increases the return. As a result, the online trader tries to reduce the increased risk caused by the leverage by a short term. Whether the risk is really lower depends on other factors. If the trader makes several trades each day, the risk is spread over several trades, but not much less.
Which risk management should you do?
In In both cases, the risk is the same with regard to the traded values, but different with regard to the product. The risk management should therefore be adapted to the product. How is that meant?
On the one hand, the investment amount or the use of a leveraged product must be much lower. Due to the low capital stakes, the trader cannot lose everything at once. Risk management also includes analysis. While the long-term investor relies on the fundamental analysis, the short-term trader cannot rely on it, because short-term price movements are often of a technical nature.
It is therefore important for the trader to find technical set-ups that take the risk minimize, keyword "CRV". This is not always easy, because traders often see opportunities instead of risks everywhere. This calls for "overtrading", with which the trader can ultimately lose everything, just not in one go, but spread over many trades.
So while the long-term investor takes his risk from 1: 1 trading, Long-term fundamental trends and good stocks diminished, the trader has to use completely different techniques.
THE TRUTH ABOUT BINARY OPTIONS
Conclusion - risk is not always risk and return is not always return
The risk of a good stock falling to zero is pretty low. However, the return does not necessarily have to be low, since the same values can be traded on different products.
On the other hand, this low risk can only be afforded by wealthy investors. Anyone who still enjoys trading and has meticulous risk management can also resort to other products such as binary options. Binary options can be traded with the broker Anyoption.