Since the global financial crisis started in 2008, ‘inflation’ has become a very familiar word in the vocabulary of binary options traders and everyday people. A lot of people feel fear when they hear the word inflation and the reason behind this is that it reduces the power of purchasing.
Usually, wages and salaries don’t increase together with the fall of purchasing power levels. Fixed investment opportunities like money markets don’t provide enough earning power that would cushion the effects caused by inflation. That’s why it’s necessary that people are educated about other types of investments that could overcome the pressures on their money by inflation.
Using Binary Options to Hedge Against Inflation
The entire idea behind using binary options as a hedge against inflation is making sure that the trader is able to get enough returns to pass the local inflation rate; and minimising the risk factor at the same time. The returns earned on savings, an investment or fixed deposit market instruments are generally safe and secure, because the financial institution paying the interest to the capital’s owner has agreed to do that in a contract. However, the financial institutions gather all the deposits together and trade high-risk but high-yield instruments. The banks get profits by proceeding with trades like this, this is how they are able to pay the owners of the capital and it is necessary for them to keep the interest rates as low as possible.
If you reside in a country where the rates of interest are very low (like The United States or Japan), it’s not very easy to make money with these kinds of investments. This is because no bank or financial institution will ever pay interest of deposits beyond the prevailing lending rates. In contrast, binary options can be used to beat inflation.
When it comes to risks, the stakes are higher in binary options when compared to other money market instruments, but lower when compared to capital, commodity or currency market instruments. Still, when the banks are not paying enough interest to beat the inflation, all the trader can do is go where the banks go and do what the banks do, only with lower risk – trade binary options.
According to a compounded returns table, it is possible to utilise a ten percent monthly return rate to turn a $5000 investment into a $15620 by the end of the year with a monthly profit of $1500 and the same amount will bring in more than $49000 with a monthly return of over $4000 by the second year. Aiming for a ten percent return rate per month is achievable and an acceptable risk to take. To get this far, you need to make 0,5 percent profit daily on your trading account, so a $5000 investment means a $25 profit a day. This doesn’t sound too complicated, does it, not even for an average investor.
One may ask, if this really is achievable, why aren’t all traders wealthy yet? It’s because many traders live for one day only. They want to maximise their returns as soon as possible and usually only give it a day. This leads to assumption of too much risk with results that were not desired. A lot of the traders also miss a specific trading plan. If they could use a longterm approach to trading binary options and stick with a three or five-year trading plan, this would be an effective way to protect themselves against inflation.