This was an interesting question asked of me recently. It basically was the concern over Binary Options and whether or not it is another form of gambling. For me i wanted to do some investigating first before i could come up with any reasonable answer. This is what i come up with.
Firstly, we all know normal Forex trading itself is not gambling, this is because once one becomes skillful at it they tend to make big amounts of dollars. Not only that, the odds are generally overall in the Forex Traders advantage unless of course you are seriously misreading the charts. Because of these two reasons general trading is completely skill based.
However binary options are a bit different.
- Binary Options are based on a bad risk reward ratio. Mostly they pay out around 70% on each trade. That means the odds straight away are in the brokers advantage which means like a casino the odds are against you. In normal trading risk and reward is decided by the trader and can be changed when desired. This means you have more control in all situations.
- I scoured across many popular options sites and virtually none offered demo accounts, that rang alarm bells for me straight away. Why would they do that unless they wanted the customer to lose money before finding out the odds were against them.
- When betting on moves of up or down we know markets do not move straight so even if you are correct that the price will move down or up in time, it may move to the opposite direction of the bet briefly before the trade ends thus you lose that trade. This gives more win ratio to the broker as well even if you are correct on a move it may go against your open briefly before closing.
- Even with a 70% payout on all bets it means that any good money management is not possible. You cannot have a bigger gain than what is risked which is the biggest flaw of most normal traders. It is like the broker is forcing bad money management.
- These platforms are designed more like a gambling system rather than an investment. Betting up or down to me is like betting on bingo and who wins there, the house.
Okay, so that is my basic overview of what i have seen. It looks more so to the yes side than not. Sorry people if you are making big on these platforms, if so and you think i am wrong on my assessment then jot down a comment on your thoughts. Also if you do trade the Binary way of betting on ups or downs then let us know if do not trade normal Forex and why not?