I’m sure pretty much all personal finance websites get these days bombarded by emails from so-called binary options companies asking them to promote them to their readers. Usually they propose very good deals and affiliate commissions for readers referred that deposit money at those sites.
But is it really a good idea to recommend these websites to readers of serious blogs? If we look into this form of online trading we’ll quickly discover that people’s winning chances are extremely low. Below you’ll find a complete and detailed description of binary options and reasons why at least at this moment you should perhaps stay away from this form of trading.
How Do Binary Options Work?
With binary options you are supposed to make predictions regarding the future movement of assets such as gold, forex, stocks and others. So far so good, as this is basically also how any other form of investing goes. The problem with binary options is that you won’t actually be investing in the traditional sense of the word. Here, you will actually be betting on the outcome of a prediction.
In other words, you will have to bet a certain amount before you’ll be allowed to make a prediction. In the case your prediction will not become true, then you will lose all the money that you have put at stake. If your prediction does come true then you will make a profit.
So basically binary option investing is actually closer to betting than real investing. This should be taken into consideration before someone engages into this practice. The fact that you will be betting on stocks, forex and other similar assets does not yet mean that you are actually investing for real.
Why Is It Difficult to Win With Binary Options?
Binary options would actually still be able to qualify as investing despite their strong resemblance to betting in case people would be allowed to make long term predictions. At present the majority of all binary options bets offered by companies will have to come true within extremely short time frames (a few minutes only).
If people could bet on outcomes that would be able to come to fruition after several days or even weeks, then yes, they may have a real shot at winning, but it is not possible to accurately predict if the stocks of a company will go up or down within the matter of just a few minutes. On the flip side, it’s very possible to do this within the matter of a few days or weeks.
You can Still “Trade” for Fun if You Want To
In principle there is nothing wrong with binary options. If you understand that you are actually betting and not investing then there’s nothing wrong with it. If you only “invest” money that you are not afraid to lose and do not expect any long term winnings then it’s all fine.
It’s however a very huge mistake to treat binary options as true investing and expecting solid log term returns. You will most likely not be able to pull this off and would instead end up losing all the money that you have put at stake.
In short, treat binary options as betting and not investing.
The problem is that most people do not understand all the above because they get bombarded by all kinds of promises by sites that promote binary options. These sites usually do not reveal that binary options are closer to betting than to real investing.
Are They Even Legal?
Binary options are at this moment legal in some countries and illegal in some others.
They are legal in the United States but only a very limited number of companies are allowed to offer them such as NADEX. Offshore companies are not allowed to offer binary options in the United States.
It’s pretty much the same in Canada as well, except that the situation of offshore companies is unclear. While technically offshore companies can operate in Canada, they would basically be doing this without any regulation and licensing. This means that if someone falls victim to a scam then that person can’t ask for legal help, as the law does not cover binary options.
The only countries where binary options are explicitly regulated are weird countries such as Malta and Cyprus. So, in short, binary options are at this moment not yet properly regulated in important countries such as forex trading and regular investing is.
What Will Happen in the Future?
Despite the fact that binary options are nothing more than betting, they continue to be very popular. Some people seem to believe that in the near future binary options will evolve and become real investing as more and more people realize that, in their current form, they can’t be taken seriously.
It’s also believed that they would become regulated in various countries in Western Europe and even in Canada. But until this happens people should understand that binary options are not yet a real form of investing and should treat them as such.
Have you ever considered investing in binary options? Have you ever had any success with them if you have?
Never considered binary options. I used to do some covered calls, calls, and puts, single stocks, etc. Now I own one single stock that is less than 1% of my net worth and the rest is in my home equity and index funds. I sleep much better at night and don’t have to waste any time trying to figure out which way the wind is going to blow… 🙂
Interesting. I’d never heard of this before.
I will have to read some more about it. Thanks for bringing it up top my attention.
This tips are interesting to try Daisy. I am planning for a big investment this 2014 and like everyone wanted it to be successful. Thanks for the tip!
I’ve heard of binary options and they sound more or less like gambling on the stock market. I have been advised to stay away from them except if you are investing money you are very comfortable losing. If I want to do that I will at least head to a casino and get to enjoy some cheap shrimp rather than watching my money vanish from a distance.