Are Forex Binary Options Gambling?

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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?

About Timon Weller

Timon Weller is the professional Trader behind the blog Forex Reviews as well as a Teacher of Price Action Trading and creator of the popular Training Series teaching people how to trade Price Action effectively called The Engulfing Trader. For other Forex Training available here at Forex Reviews click here.

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  1. Thank you for interesting site!

    Probably you should try any good binary options broker and make your decision. Today I copied one trader on eToro which have about 98% successful trades for the last month. His average income for every trade was about 12%-15% or so. And now let’s assume the same accuracy in binary trading (70%/trade – remember? 🙂 )
    Try to calculate how much he would have earned (even without martingale stratagy)!

    • Timon Weller says:

      Hey Aleksey,
      Let me know your results with binary’s, how you go i mean..? In my opinion unless a binary option site offer a better than 1 to 1 risk ratio then the odds are against you.. More so like chance.. You mentioned 70%, but are risking 100% on that trade.. That means you are risking more than your return.. Meaning you need to be right more than 70% as well to break even and profit.. If however you find a binary options site which is more than 100% return then you have something in your favor.. The market maybe heading down or up overall, but after you open a binary it may stay steady or even at the last minute flick against you.. All risks..

      However it also depends on how you trade.. I imagine trading off pin bars would work more in your favor, i just don’t like the risk reward factor of binaries, whereas in Forex i decide what risk reward i want in each situation.. stop loss etc.. Also considering i can commonly get more than 100% to 150% return on each Forex trade it makes sense with my style that Forex is more rewarding to me. Anyways, i wish you luck and feel free to share how you go with it all in future.. Regards

  2. Hans Fredrik Solbakken says:

    Hi Timon you spoke about BO here, true it is bad risk reward

    • Hey Hans,
      How’s it going? The reason they are often viewed as bad risk to reward is they offer less than a 1 to 1 reward on each trade. As an example with Binary options you need to be right on your trades more than 70% of the time in order to profit or break even. Maths is in the binary options companies favor because of this. If you ask me that makes them more difficult as a trading option in the long term for many traders.

      If, however binary options offered 100% or more return on each trade that would be different..

      Overall and more so binary options are suitable for breakout type strategies as one needs the market to move only a little bit to make money ( depending on binary option limit here, I am referring to the 1 minute example ), however they are often much harder than normal trading due to the risk to reward factor overall ( money management ).

      Overall and from my own preference, I would avoid them as a option for trading.

      Have a nice day..

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