Binary options trading has been steadily gaining popularity in both US and foreign markets as investors flock to the self-declared easy to use trading platform in hopes of making a substantial profit in a relatively short amount of time.

The all or nothing aspect draws people like bees to honey, providing a false sense of security. Like any market, it isn’t completely predictable and although binary trading is more simplistic compared to other trading options, it still requires both patience and an understanding of complex financial markets.

What is binary option trading?

Binary trading requires traders to speculate on asset prices and determine whether the price will rise or fall within a specific time frame.

Traders have 180 assets to choose from including stocks, indices, currencies and commodities. A number of trades can be opened at one time on a variety of assets, or traders can select a single asset to focus on.

Payout is based on the price of the asset when the option expires—anywhere from a 60 second time frame upward to 24 hours. There are only two options in binary trading—call or put and win or lose. Winnings or the payout is predetermined with the opening trade and risk is determined in advance.

Are binary options a safe form of trading?

The short answer—no. A reliable method of trading can help remove some elements of risk from your approach, but it doesn’t eliminate risk altogether and just because a method has worked with relative success, that doesn’t guarantee it will continue to result in success.

Without proper use of caution, diligence following the latest news and attention to your traded asset and finding a reputable trading company you could have virtually zero success.

The number of trading companies on the market to choose from grows daily. Payout ratios, minimum deposit limits, and bonuses vary based on the company. A careful review of brokers is essential for all traders, especially US traders—many aren’t even licenses in the United States and a number have been shut down recently by the SEC.

Finally, the biggest risk is that in order to turn a profit you have to be right 55 percent of the time just to break even—assuming 70 percent gains on winning trades vs. 85 percent losses.

Know how to identify common scams

There are a number of qualified and secure brokers to choose from, but somehow many individuals still sign on with brokers who operate in a country that doesn’t have a strong regulatory system.

To avoid becoming trapped by a brokerage scam look beyond basic company reviews and find out what other traders are saying. Negative comments are an extremely bad sign, especially is the broker isn’t actively working to fix their reputation or respond to negative comments.

Read the small print before you agree to any terms, especially in concern to sign on bonuses. Some brokers will offer large deposit bonuses without telling you that you’ll have to make up to three times your original deposit to withdraw the bonus money.

One of the most frequent complaints made by binary traders is they were unable to withdraw their money from a broker. In these cases calls and requests to transfer or withdraw money are ignored or the customer service department becomes impossible to contact. The easiest way to find out if a broker you’re considering is going to be a good choice is to join a forum and find out what other traders are saying.

Unfortunately, if you’ve already deposited money with a broker and have had charges placed on your card without your consent—an issue with unregulated brokers—the only remaining action you can take is to file a dispute with your credit card company.

Keep in mind you will most likely lose if you don’t have any way to prove you didn’t sign up for the services you’re disputing and you do carry the burden of proof. Disputes can also take up to 30 days, but this is your only real opportunity to get your money back.

The take away here is that although binary trading can be a lucrative means of trading and turning a profit, there is substantial risk involved and in such a young industry regulation is still catching up. Without doing your homework you are putting yourself in a position to be scammed and to lose your investment.

Author’s bio: Miles Hall is a writer who has focused largely on the world of small business since graduating from Michigan State University with a degree in General Management. Miles created and sold his first start-up while attending college and is extremely interested in the realm of small business brokerage.