Before you start investing your hard-earned cash in digital 100 options, it is important to know and understand the upsides and downsides associated with this investment form.
Below, we will list some pros and some cons of trading in digital 100 options. Hopefully, our lists can help you as you try to find out if digital 100 options is the right trading product for you.
Positives
You know beforehand exactly what you stand to loose and what you stand to win
With a digital 100 option, you never lose more than the money you invested in the option. Also, you know beforehand exactly how much you will get paid if the option expire in the money. If you buy a share in a company instead, or a traditional option, you can’t know beforehand how large the profit will be if you make a profit.
Knowing exactly what you can lose and exactly what you can win makes risk management much easier than for most other investment products.
Knowing the time frame in advance
If you buy shares in a company, you have to keep monitoring the share price to be ready to sell when an opportune moment appears. You also have to make that sell decisions – and there is a risk that you wont make it in time before the share price starts plummeting. While this can somewhat be managed by installing automatic sales protocols (such as stop-loss) there is still that element of human psychology involved, and you might decide to log in an meddle with your set parameters just because you reeeealy believe that the stock price will keep soaring for one more day.
With digital 100 option, human psychology is removed from the equation once you have confirmed your purchase. Just sit back, relax and wait for the option to expire at the set expiry time. Also, you will know exactly how long your money will be tied up in this particular investment. This makes it easier to stick to strategies for money management and risk management.
N.B.! Some vendors of digital 100 option gives you the opportunity to sell your option in advance. When such transactions are possible, the dynamic changes and human psychology comes into play throughout the lifetime of the option.
Speculate without owning the asset
Do you want to make money on the fluctuations of Bitcoin or some other crypto currency? Do you have a hunch about the gold price? Do you believe that Berkshire Hathaway are about to release some really great numbers that will make the share price soar even higher?
Sometimes we see great investment opportunities, but practicalities prevents us from realizing them. Maybe you don’t want to go through the hassle of installing a bitcoin wallet on your computer and register your personal information with a bitcoin trading site. Maybe filling your safe with gold bars with come with some rather unpleasant transaction costs and risks. At the time of writing, ONE share in Berkshire Hathaway costs in excess of 300,000 USD – do you have that kind of spare change laying around and are you ready to invest it all in one company?
With digital 100 options (and other derivatives) you can exploit price movements and gain from them without actually having to become the owner of a specific commodity, currency, company share, and so on. Also, you don’t have to open up one account for stock trading and another account for crypto currency trading – everything can be done within the same digital 100 option account.
Profit even in a falling market – without the risks that comes with selling short
Sometimes we just KNOW that the price of a certain asset is about to drop like a stone, or that the bottom is about to fall out of a whole market segment. We diligently sell off our investments to avoid the fall, but is this really all we can do with that knowledge? The answer is that a skilled trader can profit even from falling prices.
Traditionally, the way to profit from falling prices have been to sell short.
- Borrow 100 shares in Company A from Lender X.
- Sell them right away for the current value, which is $300 a share. You get 100 x $300 = $30,000.
- Wait for the Company A share prices to drop. When it’s time for you to return the 100 shares to Lender X, you buy them on the stock market for $200 per share. You pay 100 x $200 = 20,000.
- Give back 100 shares in Company A to Lender X.
- The difference between $30,000 and $20,000 is your profit (minus transaction costs).
So, what’s the problem? The problem is that selling short has a limited upside and virtually unlimited downside for you. You can never make more than $30,000 on this trade. (If the shares become worthless before its time to give them back, you make a $30,000 profit, minus transaction costs.) But you can lose enormous amounts of money if your prediction was wrong and the price goes up instead of down. Example: When it’s time for you to return 100 share in Company A to Lender X, the share price has sky rocketed and is now $500 per share. You have to pay 100 x $500 = $50,000. $50,000 – $30,000 = $20,000. You have lost $20,000 + transaction costs.
Play it safer with digital 100 options
Derivatives makes it easier to profit from falling prices without having to accept the risks associated with selling short. One example of such a derivative that can be highly profitable in falling markets is the digital 100 option. Simply purchase a DOWN or LOW digital 100 option and wait for it to expire in the money. If you are wrong in your prediction and the option expires out of the money, you don’t lose more than what you paid for the option.
Quickness
Many vendors of digital 100 options will allow you to buy options with a very short lifespan; sometimes just 30 seconds or 60 seconds. This is great if you don’t want your money to be tied up for long.
Instead of making one long-term investment and then wait for it to reach maturity, you can make multiple short-term investments and keep your money moving. This makes risk management easier for speculators with small bankrolls.
Trading available 24/7
Most vendors of digital 100 options have such a vast array of underlyings available that there is always some options being offered for sale, even if you are looking for super short-term options and it happens to be Sunday or Christmas Day.
Negatives
Quickness can be a double edged sword
Above, we listed quickness as a positive aspect of digital 100 options. But this quickness also come withdraw backs. When it is possible to buy options with a lifespan of a mere 30 or 60 seconds, it is easy to get drawn into something that resembles casino gambling more than investing in derivatives.
No owner’s rights
If you buy a share in a company, you get shareholder’s rights – such as voting rights at shareholder meetings and the right to receive dividends if dividends are paid out. When you trade in derivatives instead, such as stock options or digital 100 options, you get none of those rights.
Legal quagmires
The digital 100 option field has been plagued by disreputable vendors, and it can be difficult for the ordinary smalle-scale hobby investor to recognise the good apples from the bad.
As a trader in 100 digital options, you are really in the hand of the vendor – who will both set and apply its own rules. If you invest money directly in shares noted at NYSE, you know that you can trust the share prices proclaimed by NYSE. If you invest in a digital 100 option based on the share price, you have to hope that the vendor will apply the NYSE price at the exact right moment without any delays or hick-ups. A bad vendor can simply delay the NYSE feed a bit, making it look as if your digital 100 option expired out of the money when it actually expired in the money.
Also, some vendors do not keep client funds separated from company funds, which means that clients end up losing their money if the company files for bankruptcy.