Long Term or Short Term Binary Options Trading – Which One is Right for You

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Which one is more risky? Short term or Long term?

Тему создал/а rakib7970, November 22, 2020 in Trading

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Short-Term Savings Options: Which One Is Right for You?

by Jessica Sommerfield · 6 comments

Do you have a large but short-term savings goal? Perhaps, like me, you want to save at least 20% of a future home as a down payment. Maybe you want to purchase another vehicle or recreational toy in cash versus going into debt, or finally finish a much-needed home improvement project. One thing these diverse savings goals have in common is that they’re short-term – you’ll want to be able to use the money in say, one to four years.

If you don’t know how much you’ll need to set aside every month to reach your goal or what interest rate you might need to reach it in a certain time frame, use an online amortization table to help you calculate that number. Knowing what you need before looking at your options will allow you to quickly locate the one that best meets your needs.

So what are your options? You could just deposit cash into a savings account at your bank, but with some of the lowest interest rates around, brick-and-mortar accounts aren’t going to yield much more than you put into them. On the other end of the spectrum, you don’t necessarily want to invest in risky stocks or long-term bonds either.

For short-term savings goals, there are three main features you’ll want to keep in mind:

  • Security (possibly FDIC-insured)
  • Minimal risk (not subject to market volatility)
  • Liquidity (easy, fast withdrawal without penalties)

For short-term savings, it’s more about the return of the money versus return on the money. But while you’re at it, there are several options that can accomplish both with minimal risk:

  • High-yield Savings Accounts
  • CDs
  • Money Market Accounts
  • Investment Accounts

High-Yield Savings Accounts

Interchangeably called online savings accounts since that’s their mode of operation, high-yield savings accounts are becoming one of the most popular short-term, risk-free, highly-liquid options. With lower overhead, online banks can offer higher interest rates – anywhere from 10 to 20 times that of regular savings accounts. Like normal bank accounts, they’re still insured by the FDIC. A few of the downsides to these accounts are withdrawal restrictions (6 or less a month) and the lead time required before withdrawal (up to 5 days). Even though they offer higher interest than regular savings accounts, their rates are still lower than some other options.

Money Market Accounts

Money market accounts, another type of insured account offered by banks, blend features from checking, savings and low-risk investment accounts. Like checking accounts, they often include debit cards, allow you to write a certain number checks a month, and have fewer withdrawal restrictions than online savings accounts. At the same time, they can offer better interests because they trade in short-term, low-risk investments like U.S. bonds and CDs. Their focus is getting the best market return for your money in the shortest amount of time. On the down side, they often require a minimum initial deposit anywhere from $5000 to $25,000.

CDs (Certificate of Deposits)

If you can let your money sit for a while (from 3 months to a few years), CDs can offer higher interest than brick-and-mortar savings and sometimes even online savings accounts. Like other types of bank accounts, they’re also insured. To maximize your earnings without suffering early withdrawal penalties, some recommend splitting up your deposits into 3 or more ‘ladders’ of 3-month increments. That way, if interest rates rise, you can re-invest an expiring CD into a new one with a better rate.

Brokerage Accounts

Finally, there are brokerage accounts that let you invest in securities such as stocks, bonds and mutual funds. These are not FDIC-insured, will require brokerage fees, and your investment is subject to market fluctuation. However, if you can afford to take on risk of loss, your investment might earn a higher return. And don’t confuse the money market funds you can invest in via the brokerage firms with the money market accounts we mentioned earlier. Money market funds are mutual funds with low risk offering a minuscule yield nowadays, as oppose to an account type.

As you consider how to save for a short-term goal, consider which of these secure, low-risk, highly liquid, but still interest-bearing options might provide the best return on your money. Who knows – maybe you’ll save and earn enough to exceed your initial savings goal and start working on the next.

Editor’s Note: I’ve begun tracking my assets through Personal Capital. I’m only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it’s much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it’s free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.

Options vs. Stocks: Which Is Right for You?

When taking stock of how to invest in the market, you have options — both literally and figuratively.

You can buy stocks, which represent shares of ownership in individual companies, or options, which let you bet on which direction you think a stock price is headed. While there are important differences between stocks and options — and the type of investors who gravitate to each — these assets can complement one another in your portfolio.

While finding interesting investments within the stock or options markets may be appealing, don’t ignore low-cost index funds and exchange-traded funds, which bundle a number of assets into one investment. Experts generally recommend that investors use these assets to form the basis of a long-term portfolio — and they also serve as a good entry point for beginner investors. (Read more about why you may need an index fund.)

If you’re intent on diving into the market via stocks or options, that’s just fine. The guidelines below can help you make the right choice.

Stocks: Best for beginners, long-term investors

If you’re looking for a straightforward way to begin investing for a goal more than five years away, such as retirement, stocks are a great choice. While there’s no guarantee you’ll make money — the performance of any individual stock can be volatile — the U.S. stock market has continually proven to be a fantastic long-term investment.

The beauty of investing in stocks is simplicity: You buy a stock, betting its price will rise so you can sell at some point down the road at a higher price. That applies whether you plan to hold a stock for years or try your hand at day trading — actively buying and selling stocks over short time frames like days or weeks.

» Need the basics? Get step-by-step instructions for how to buy stocks.

For beginner investors, and especially people with a long-term strategy, stocks are a clear winner over options, says Aaron Anderson, senior vice president of research at Fisher Investments. That’s because in addition to lower expenses and a more straightforward approach, stocks allow for a hands-off investing style, he says.

The beauty of investing in stocks is simplicity: You buy a stock, betting its price will rise so you can sell at a higher price.

After researching the stocks you wish to invest in — ones that you believe have a growth potential that fits your time horizon — you don’t need to obsessively check on them every day. You can simply keep an eye on them until the time comes when you need that money or set an alert through your online broker when the stock’s price reaches a level at which you want to sell.

Potential drawbacks: Risk, fees, taxes

The risk associated with stocks are straightforward: The price could plummet to zero and you’d lose your entire investment. Because the performance of individual stocks can be volatile day to day, experts generally recommend investing in stocks with money you won’t need for at least five years. To further reduce risk, don’t pile all your money into a single stock.

How active a trader you are will affect performance — and how much you’ll pay in commission fees and capital gains tax on profits. Commission fees for stock trading vary, so shop around before opening an account. (Compare fees among NerdWallet’s picks for the best brokers for stock trading.) Your capital gains tax rate depends on whether you realize a profit on the sale of the stock, how long you’ve held it — rates are higher for stock held less than a year — and your income.

Options: Best for active traders who want flexibility

Looking for a more tactical approach to investing, one with a smaller investment requirement and flexibility regarding timing or downside risks? Options may be up your alley.

With options, the associated time period for investment is inherently shorter, making them more appealing to traders who buy and sell regularly. All options contracts have expiration dates, which can range from days to years.

» Need a refresher? Check out NerdWallet’s options trading 101 guide.

While many people like the flexibility afforded by options — namely, time to see how a trade plays out and the ability to lock in a price without an obligation to buy — they do add complexity to the investing process. Rather than making one decision, such as betting that a stock’s price will go up, you must make three:

  • What direction the stock is headed
  • How high or low it will move from its current price
  • The time frame in which that will happen

That’s options trading at its simplest; there are more complicated strategies for advanced traders.

There should be a good appetite for investors to use options as a hedging tool.

Wade Guenther, portfolio manager at Horizons ETFs Management

Options trading requires you to learn a new vocabulary of terms like puts, calls and strike prices, which may lead you to believe these assets are riskier than stocks. That notion is overstated, especially because investors can let an option expire and incur no further financial obligation other than the premium paid and associated trading costs, says Wade Guenther, a portfolio manager at Horizons ETFs Management. What’s more, long-term investors can use options as a type of insurance, he adds.

“There should be a good appetite for investors to use options as a hedging tool,” Guenther says, adding that this is a way for beginners to become familiar with options trading. Buying a put option will help mitigate potential losses if the value of a stock you own goes down. The price you pay for the option, what’s called the premium, is akin to an insurance premium, he says.

» Excited about options? Check out NerdWallet’s picks for the best options trading brokers and platforms.

Potential drawbacks: effort, additional risks, cost

Options trading requires a more hands-on approach than investing in stocks. You may wish to exercise the option before expiration, and that means you’ll have to keep a watchful eye on the related stock’s price. You can set alerts through your online broker.

Also, some options strategies are riskier than others, so make sure you understand the trade in advance. Hint: Don’t opt for daily or weekly options, which tend to be reserved for more seasoned traders.

The more you trade, the higher your costs.

Another downside of options trading is the related costs, which generally are much higher than for stocks. Options traders usually pay a flat fee per trade, ranging from zero to $6.95 at the major brokers, plus a per-contract fee ranging from 15 cents to 75 cents. The more you trade, the higher your costs — and don’t forget, you’ll pay fees to sell, too. Finally, as with stocks, be sure to factor in capital gains taxes. You’ll be on the hook to pay taxes on profits; these taxes are higher for assets you’ve held less than a year.

Making your choice

Deciding whether stocks or options are better for you is entirely a personal decision, based on your investing style. Beginner investors and those who prefer simplicity generally will stick to stocks for their straightforward nature. Those who favor an active investment approach and love to watch the market may find options appealing.

But don’t assume you have to stick to one asset. After all, options traders inherently become stock investors if they exercise call options. Meanwhile, many stock traders use put options as a hedging mechanism. Whatever you decide, just make sure you understand what you’re doing first.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    Best Options Broker 2020!
    Great Choice For Beginners!
    Free Trading Education!
    Free Demo Account 1000$!
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  • BINOMO
    BINOMO

    Only For Experienced Traders!

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