Place your Options – not your Bets!
To gamble means to try and achieve an outcome or a result on the basis of pure luck or on the basis of chance. Binary options trading is not supposed to be an exercise in gambling, but sometimes it can be compared to it. It is true that the binary options market is one where the trader can gain or lose depending on the asset ending in one of the two possible scenarios. In its simplest form of up or down, all that a binary options trader is required to do is predict either the upward or downward movement on a financial market chart. Therefore, binary options, as the name suggests, have only two possible outcomes: win or lose. The fact that trade results are all or nothing encourages some traders to take risks by guessing trade directions or using maximum risk in trading. These kind of bad practices is why binary options trading has sometimes been likened to gambling. However by treating binary options as a financial market and not a casino, you will not have to worry about the risks that gambling incurs.
In binary options you are not typically betting against ‘the house’. If two people place opposing “bets” (say one places a Call option and the other a Put option), this procures no risk for the trader. Yes, in a sense one could argue that you are risking money by predicting an outcome. You “bet” if the price of an asset will rise or fall below its current price in a certain time period and whether you will end up “in-the-money” (if the trader is correct, and the asset price rises or falls according to their prediction) or “out-of-the-money” (if the trader is incorrect, and the asset price does not rise or fall according to their prediction). However, despite the similarities, binary options trading is not considered gambling by most.
There is one key reason for this: analysis. Fundamental and technical analysis are both used as tools to make educated investments in the price movements of assets like precious metals, currencies, indices or stocks. Without this analysis, trading binary options could be considered a gamble. Instead, traders can get familiar with an asset. Let’s take gold, as an example, which has seen a drop in price recently, partly due to stronger economic data from the U.S. – when the dollar rises on better economic sentiment, gold falls, as investors move their money to the opportunity. A binary options trader will watch the news for economic data about the U.S. economy, and based on that, would place a Put or Call option on gold. Sometimes, they will use a hedging strategy, in which they place Put and Call options on both gold and the dollar. Expiry times in binary options are very short, so traders have to have an eagle eye out for the opportunities.
“Having to do your homework to get the results you want is what truly distinguishes binary options from gambling,” says Senior Account Executive Zoe Sullivan, from leading binary options brokerage, Banc De Binary. “With so much complexity in the fundamentals of every asset, the simplicity of executing a binary options trade allows investors to immerse themselves in asset research, and trade only when they feel they have an isolated and profitable entry point, thus increasing their chances of success.” According to Sullivan, by familiarising themselves with fundamental and technical analysis, staying abreast of economic indicators and understanding how the markets work, traders have an edge. This is not possible with gambling which does not require education, nor understanding.
Additionally, unlike gambling, binary options traders have the option to use the tools available online and on good websites to help them make informed decisions in order to minimise risks or at least choose the level of risk comfortable to them. They are also offered a personal account manager to correctly advise them on how to properly capitalise on their trading expertise. This kind of money management option available to you in trading binary options is what separates it even further from gambling.
Nevertheless, due to the increasing popularity of binary options trading websites, it is easy for potential traders to become curious as to what these sites may offer, even if they don’t have the skills or experience that would be advisable to attain before trading. Many of the online advertisements are also misleading, guaranteeing profits, making this arena ripe for scam artists who are more interested in profiting from traders rather than helping site users reap the rewards of honest investing. Bearing this in mind, it is no surprise that there are many who may feel that trading binary options is similar to gambling. Yet, more educated and experienced traders argue that, unlike gambling, the activity of trading is both an art and a science – one that can make you a lot of money in a legitimate way, if approached properly.
Although most of the binary options trading websites promote flexibility and a wide range of differing assets to trade, one of the keys to success in this arena is focus. As with most other undertakings, being a “jack of all trades and a master of none” opens the door to fragmented concentration that can ultimately result in trading losses. Rather than attempt to master all types of options on every available exchange, traders may be better off placing their focus – and their funds – on just a few specific areas, at least until they are more comfortable with moving forward.
If binary options traders get to know how new platforms work, and the options that are available, as well as where to turn for assistance, potential pitfalls can be avoided. Getting a real feel for the speed at which the market moves, as well as on how to conduct thorough analysis of options and their underlying assets, can also help to point newer binary options traders in the right direction. Many of the better binary options trading sites allow their users to become more attuned to trading these types of options by offering online tutorials and guides, as well as by providing access to demo accounts where traders can participate without the risk of losing real money.
When it comes down to it, nobody can predict the future. We can all speculate and try to predict it based on knowledge, feel and experience but one can never know for sure all the variables, or the outcome. Being somewhat of a novice on the trading scene, compared to the more established forex industry, binary options have still a long way to go in order to gain the trust, understanding and good reputation that they deserve. In the meantime, there will always be people out there likening betting on sports with “betting” on the markets. At the end of the day, though, one thing’s for sure: binary options trading is more interesting and more profitable than gambling. It’s up to you to do to the research and choose yourself whether to gamble or invest.
About the author:
Nathalie Kyrou is a writer / creative
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