What’s a better place for your money: a mutual funds or a binary options trading account?
This is, as you’ve probably guessed, a loaded and problematic question. Binary options and mutual funds are two very different types of financial tools, and they have very different short term goals. So, instead of tackling this question right off, it’s more important to ask yourself a slightly different one: is short term trading or long term investing superior?
Short Term vs. Long Term and More
If you are thinking about becoming a short term trader, either a binary options trader, a Forex trader, or something else, it’s important that you have an understanding of how long term trading works. Is it a must? No, not really. But if you get the basic concepts of how to be a successful long term investor, short term trading makes a lot more sense.
The concept of “Buy low, Sell high” is essential to success, but it’s only half of the story. Short term traders are in the unique position of being able to make money regardless of what is happening in the markets. If prices are dropping, you can make money by taking out short positions, even. But if you don’t have the basics down, then this is almost impossible to do. Short term trading is a lot harder to be successful with, and unless you have obtained long term trading skills first, then you should not attempt to day trade.
So to answer the question, do you go with short term or long term trades, the answer is entirely dependent on what your purposes are. Are you getting ready for retirement? Or, are you trying to create a cushion of wealth that you can use in a few months or years? Are you looking for something that you can largely not pay attention to, or do you enjoy the hands on approach to managing your money? Do you want to spend a few hours per day researching markets or would you rather leave this to the professionals?
The answers to these questions will be a good guide for you as you figure out which is best. By themselves, short and long term trades are neutral in value. You want to choose the one that will help you personally help you to succeed. Some people benefit from both, just one, or none at all. You will need to figure out where you fit in here on your own.
Your Overall Goal
What is your overall goal? If you don’t know, spend some time thinking it over. This is an essential question, and it will guide every decision that you make.
Long term and short term goals are not incompatible. In fact, a lot of traders use this as a way to increase their diversification and safety. It’s no secret that professional portfolio managers urge clients to diversify; do you know why? Because a diverse assortment of holdings means that when one part of the market fails, you are boosted by the other parts. If you have all of your money in a single stock and that company goes bankrupt, your money is lost. If you have your money in 12 different stocks, then less than 10 percent of your money is lost—a much better outcome.
If you have an IRA or a 401(k) set up and you want to be a short term trader, it’s perfectly fine to do both. In fact, when done right it can help you reach your retirement goal even more quickly. Let’s say your goal is to have $750,000 in your IRA by age 50. If you already have $100,000, and you max out your contributions yearly, you can take your extra money, put it into a trading account and grow it outside of an IRA. When it’s time for your next contribution, that money is already easily accessible, and might even be able to grow somewhere else if you wish. It’s all a matter of what your goals are.
Whatever you do, remember that short term trading is high risk. There’s always a strong chance that you can lose money. If you’re going to trade, be sure that you incorporate that risk into your strategy so that if you lose money trading (or investing!), you have more than enough to live off of without creating issues for yourself and your family. Even the most successful traders lose money sometimes, but they take measures to ensure that lost money is not a lifechanging event by minimizing risk wherever they can. When your money is spread out (such as with a trading account and a retirement account), your overall risk is decreased by a lot.
If you’re new to trading, you might be wondering how much money you need to start out. That’s a good question, and it really depends on what you’re looking for. If you just want to learn what you’re doing so you can get ahead later on, then we recommend starting out with a minimum deposit. Many binary options and CFD brokers will let you open an account with $100 to $250. That’s not a ton of money, and it does leave you susceptible to variance and therefore put you at an extra degree of risk, but it’s also enough to learn a platform and some basic trading strategies.
If you are ready to be more serious about your trading, the minimum that you should deposit is $1,000. This is still a small amount of money, but if you make minimally sized trades and you focus on high quality situations, you will likely see your account gradually begin to grow. No, this isn’t a guarantee, but most traders find that this is a good number to whether the bad spots that you will eventually go through.
Are you a long term investor or a short term trader? Why can’t you be both? You are using both to grow your money, and you are using both to get closer to your final goals. If this strategy makes sense and you have the expendable capital, then it is perfectly reasonable to incorporate both into your financial life.