Binary options were originally created with simplicity in mind so that they would be as easy to trade as possible. As a consequence of this mode of thinking, many authorities have subsequently categorized them as just another form of gambling. However, is this classification truly justified or is there more to this innovative investment vehicle? This article is intended to generate reasoned answers to these important questions by assessing the primary features of binary options.
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Differences between gambling and Binary Options trading
The key reason why trading binary options is deemed by some quarters to be nothing more than just gambling is that there can only ever be two possible outcomes when you trade them. Essentially, you can win and finish ‘in-the-money’ or lose by ending ‘out-of-the-money’. Consequently, this investment type portrays a similar image to casino games, such as roulette. This is because when you play roulette you are again primarily betting on two possible eventualities, which are red or black.
As such, you can now understand why binary options have acquired such a dubious reputation since their inception. Many experts have deduced and then expressed the view that this form of investment was simply a gambling mechanism that was ideal for speculators seeking swift profits by undertaking minimum research.
Consequently, the binary options environment has been classified as the ‘wild west’ of financial trading. This opinion has acquired further credence since this industry is presently regulated and supervised by different and random standards throughout the world. Even most national Inland Revenue departments do not tax binary option activities as they consider them to be just a form of gambling.
(Risk warning: Your capital can be at risk)
Is Binary Options trading profitable?
Indeed, at a superficial glance, the decisions that you have to make in order to execute a binary option could hardly be simpler. You just need to assess whether the price of a selected asset will rise or decline. You then must choose an appropriate expiry time and determine the amount you want to wager. That is it! You do not even have to undertake any meaningful due diligence on the asset you plan to trade.
Can such a lackadaisical approach really produce a constant stream of profits? Many professional traders emphatically stress that, in reality, this is definitely not the case. This is because you must attain a win-to-loss ratio over the long haul of at least 55% in order to just break even. This is because you will collect a payout ratio between 65% and 85% if ‘in-the-money’ but will lose between 85% and 100% when ‘out-of-the-money’. As such, the odds are certainly not in your favor if you adopt a gambling mentality.
This conclusion is extremely important as it completely dismisses the notion that binary options trading can be viewed as a type of gambling. Instead, you will have to instigate a more professional attitude and strategies in order to attain constant success similar to ones utilized to trade more traditional investments, such as stocks and Forex. If such a viewpoint is really valid, then why are global authorities so relaxed in their desire to regulate this business formerly and properly? The simple answer to this question is that they are very concerned.
Is Binary Options trading a true financial investment?
There are dramatic moves afoot at the moment across the globe to activate new legal stipulations that will classify binary options trading like a true financial investment. Soon, any gambling statuses will be completely eliminated as binary options will no longer be considered in such a lax manner any further. As such, a balanced and uniform environment will be created which will replace the present one that is inundated with uncertainties and doubts.
For example, the recent inception of the Dodd-Frank Act within the USA has generated major influences on the binary options industry. For instance, traders can no longer legally speculate on stocks and currencies by using them as underlying assets for binary options. Trading commodities and indices are still permitted. Many brokers and investors have not yet appreciated the full impacts of this Act and, as such, have continued to operate on an ‘as usual basis’. However, such practices will shortly come to an abrupt end as the US government is almost set to impose new legislation which will ban all unlawful pursuits.
How controlled is Binary Options trading?
Similarly, the Eurozone is currently in the progress of devising and instigating a more regulated binary options environment. In particular, CySEC, the Regulatory Authority of Cyprus Markets, has been designated with the ability to now fully monitor and legally control this business throughout the currency bloc. The main activities of this body are as follows.
- Track all binary option activities throughout the Eurozone.
- Evaluate and monitor all binary options brokers operating within the region with the intent of detecting any unlawful pursuits, e.g. fraud, etc.
- Validate the honesty and accuracy of all data presented to the general public by binary brokers, such as promotional material and financial figures, etc.
- Verify that all financial procedures performed by brokers are undertaken in a timely fashion and are transparent.
As a result of all this global activity, binary options will soon achieve a proper status as a fully regulated form of financial investment. This development will imply that all brokers servicing this industry will have to be licensed and supervised by the appropriate authorities overseeing their primary location of residence. They will also have to comply with the legal stipulations contained within all applicable and relevant Financial Service Acts. In addition, further laws are also under consideration in order to eliminate broker malpractices that are presently rife throughout the binary options business.
Conclusion: It is not gambling
In summary, binary options cannot be viably assessed as just another type of gambling. This is because such an approach will only generate losses over the long term. Instead, a more professional trading attitude needs to be adopted in order to ensure success. To that end, dynamic moves are currently being assessed to convert the present laid-back binary options trading environment into a fully regulated one.