Directional trading is a trading strategy based on the direction of securities or the general state of a financial market. Originally, directional trading was done through stocks, but this proved way too costly, as even if the market went in the predicted direction, the profits usually could not cover all the associated costs; traders would be lucky to break even. However, this all changed when directional traders switched to using binary options instead.
Earlier directional trading strategies involving stocks came down to either take long positions if you think the price will rise or take short positions if you expect the price to fall. The reason most traders gave up on this strategy in favor of directional trading via binary options is the fact they needed some kind of backup plan, a way to ensure safe return on their investment; for a number of reasons, stocks simply could not provide them. With stocks, a trader would need to trade huge, just so he can secure profits large enough to cover the costs, let alone come out on top. Plus, the movement itself had to be large enough to support the whole deal. With binary options, the size and scope of the movement is absolutely irrelevant, as long as the general parameters are met. Traders get the same payout regardless of such trivialities, and profits can be safely calculated in advance, so there should be no surprises on that front, either. Options simply outclassed the competition.
Stocks vs binary options
When trading direction through stocks, the sheer number of factors one must take into account is staggering; furthermore, the value of stocks can be extremely volatile, and liabilities associated with being a stock holder routinely took its toll on both traders and their profit margin. However, binary options took this liability out of the equation; binary options holders have no association with stocks or securities that their options are placed on. Their only concern is the price movement of the underlying securities, in order to win a fixed amount of money. This fixed, predictable income was exactly what was missing from previous attempts at directional trading. When trading direction using binary options, you need only make sure you got the direction right; the actual value stocks and securities will achieve is of no concern to you, as it is not your profit margin that this will affect – yours was secure the moment the predicted price was reached and conditions were met. You pay your premium, the seller covers the remainder to 100 dollars per option, and the winner gets all.
Directional trading through binary options is the new norm in modern markets. Nothing seems likely to threaten the position of binary options in this regard at this point, or in the foreseeable future. These are powerful tools for any trader and, as long as you use them wisely, the (financial) world is your oyster.