Battle of the Options: Vanilla VS Binary

Binary options are significantly different from vanilla options. Plain vanilla options are a normal type of option that will not include any special features. A plain vanilla option provides the holder the right to buy or sell a fundamental asset at a specified price on the expiration date, which is also known as a plain vanilla American option. While a binary option has special features and conditions, as explained previously.

Binary options are regulated by the Securities and Exchange Commission and other regulatory agencies, tend to be most likely exchanged over the Internet on platforms existing outside of regulations. Because these programs operate outside of rules, investors are in greater risk of fraud. Conversely, vanilla options are typically managed and traded on major exchanges.

For example, a binary option trading program may require the entrepreneur to deposit an amount of money to acquire the option. If the option expires out-of-the-money, signifying the investor chose the wrong proposition, the trading platform may take the complete sum of deposited money with no refund provided.

Who Wins?

This is the classic match up of risk vs reward.

Vanilla Options:

Traded on Major Markets

Typically Backed

Lower Risk

Lower Reward

Binary Options:

Often not traded on Major Markets

Not Backed by Financial Advisory Commission

Higher Risk

Potential Higher Reward

On Paper, it comes down to how risk adverse someone is. Like any financial purchase, it really is about how knowledgeable you are on the market. A Binary Option being traded through a trusted party has no more inherent risk than a vanilla option. But traded by a novice? Even a CD has risk to it.

When Investing, Diversity is King

Diversification is a phrase you’ll listen to a great deal as you find out about various investment strategies, and even though it sounds extravagant it’s actually a fairly simple idea both to comprehend also to benefit from.

It’s also the only path that you can reduce your investment risk without lowering your expected go back.

That means it is a fairly valuable tool. And in this article you’ll learn what diversification is, why it’s so powerful, as well as how to use it.
Diversification is a different one of these fancy-sounding investment conditions that’s actually very simple when you break it down. All this means is spreading your cash out over multiple different investment funds rather than placing your eggs into one container.

Alternatively than purchasing a solo company, you spend money on a number of companies. Than making an investment only in the U.S. currency markets, you spend money on international stock market segments as well.

That is, rather than staking your investment bundle of money on a tiny subset of the opportunities accessible to you, you propagate your cash around so that a few of it will continually be in the best-performing investment funds.

The Flip Side

While this all sounds great, it is a logical appeal. The illogical, or emotional appeal, is what is the counter argument.

While you may experience great long term growth through diversity, everyone loves the prospect of winning the lotto.

In perspective, the stock market is like the lottery if you do not know what you are doing. Most people like to buy lotto tickets for the chance of hitting it big.

The thought is you could put a couple dollars on a scratch off, a couple dollars on a mega million ticket, and a couple dollars in your bank account just to be safe. This is diversity.

On the other hand, you have the lack of diversity in hopes of getting lucky. This would be the guy who drops 1,000 on a lottery which climbs over several hundred million dollars.

The thought is, if you stock gets big, you will make a lot more money without diversity.

I hope you see the financial peril here. The smart money will always diversify.