Advocates for investment and financial services have regularly branded Binary Options trading as being nothing but legitimate gambling and suitable only for highly addictive personalities, often taken to poker tables. So is Binary options trading a gambling myth or a legitimate means of making money online?
Definition of Gambling
Gambling is the wagering of money or something of material value (referred to as “the stakes”) on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods. Gambling thus requires three elements be present: consideration, chance and prize. The outcome of the wager is often immediate, such as a single roll of dice or a spin of a roulette wheel, but longer time frames are also common, allowing wagers on the outcome of a future sports contest or even an entire sports season.
Definition of Binary Options Trading
In finance, a binary option is a type of option in which the payoff can take only two possible outcomes, either some fixed monetary amount (or a precise predefined quantity or units of some asset) or nothing at all (in contrast to ordinary financial options that typically have a continuous spectrum of payoff). The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and fixed return options (FROs) (on the American Stock Exchange. (Courtesy of Wikipedia)
The difference and similarities
Binary Options trading is taking an option on Assets such as currency pairs, commodities, and and Indices. The stake is your trade value, and the payout for a successful decision is predetermined by the Broker. The principles of trading Binary Options require the same trading techniques of classic Stock Exchange and Forex trading. But since the outcome is is only a choice of whether the price will increase or decrease over a specified time frame, it is a much simpler trade to execute than classic trading.
Binary Options trading is widely executed online, and it brings together traders and brokers on platforms that are easy to navigate. Brokers provide the platforms on which traders to place their options. Brokers are either regulated by Government and Finance regulated bodies such as the FDA in the UK, Cysec in Cyprus or the CFTC in the US or unregulated by any financial regulators.
In Casino gambling the individuals playing are playing against the House and are relying of a game of chance where they place bets on the probability of an event occurring. The individual either places money on a favourite or probable winner such as in racing bets. The payout can be graded depending on the eventuality and performance. The big difference between trading binary options and gambling is that in binary options, the trader is in possession of information and tools that can influence and help his decision on his option. in Gambling the individual is relying entirely in luck.
The similarities in both gambling and binary trading, is the financial risk that the individual undertakes in both circumstances. The risk in gambling is not defined. The risk in binary option trading is more in control. Financial information is available widely and for free and trading structures and business models can set the trading decision. Casinos are designed in such a way that patrons, keep winning several amounts so that they stay hooked to the tables. In binary options trading, trading is executed in a more formal manner, and with Regulated brokers, there is no possibility of the prices being tweaked or leveraged. The determining factor in binary options trading is the financial market and the way it reacts to price changes and not the broker.
Some better brokers such as 24 Options offer a before expiry closure. The payout would be less than the guaranteed return if the trade expires in the money, however if the trader is happy with his rate of return he may opt to close the option. Other brokers such as Banc de Binary will also guarantee a minimum capital refund of up to 20% if the option is out of the money on expiry. With gambling, the Houses will not refund any cash wagered.
Poker games and also betting on football games also offer the possibility of having some strategy in place. Football teams have a performance record, and before a game this can be analysed along with the fact on whether any of the players are injured and whether they may be playing home or away. Likewise, in a poker room, seasoned players study betting patterns of other players and although luck and chance play can play an important role, a professional player in the long run has a better chance of winning against a new player. Whereas in a poker game, a new player who just knows the rules, may end up winning a table because of a lucky steak of cards, In trading this will not happen as a trader taking options without knowledge and strategy will certainly be a net looser very quickly. Poker and Binary Options are similar in the sense, that professional and seasoned players or traders have a much better chance of making money because they have a strategy. In Binary Options trading, if a trader takes time to learn fundamental and technical analysis, chart patterns and indicator tools, he is armed with knowledge to make more accurate decisions as to where the price will head within the time frame of his choice.
Betting is mostly dependant on the luck factor. Binary Options trading is solely dependant on the markets and the behaviour of the financial industry. Betting and binary options are only identical in situations where the gambler is trading without knowledge. The emotional factor is where traders and gamblers, especially newbies make common mistakes. Traders with strategy in the long run make money online.
It is conceded that trading binary options carries high risk of loosing your capital. In this respect only it resembles gambling. If you are a newcomer you are strongly advised to trade on a demo account until you have a trading plan and a history of successful trading. If you want to have a couple of hours of fun with betting, with just a basic knowledge of rules, we strongly recommend that you join a poker room.
Serious Binary options trading, is legitimate. Studying charts and doing market analysis is the foundation of trading. Whilst nobody can predict the future, it is far easier to speculate on a financial market based on analysis, then to tempt Lady Luck to kiss your cards.
Remember to trade only with recommended brokers from our list and to avoid trading with unregulated brokers. Trading with blacklisted brokers is worse than gambling. You never stand a chance to win.