Many people stay away from binary options because this trading instrument is often considered too close to gambling. The truth is that all trading can be gambling if you don’t know what you are doing.
Choosing the right broker can also be tricky because there are many scam binary firms around. You should always ask for recommendations.
Are binary options gambling?
We consider that both entirely false and entirely true. In fact, binary trading is similar to spread betting because you don’t actually own the underlying asset; you simply speculate whether the price will rise or fall.
Betting on greyhounds is pure gambling because you don’t have any influence on the end result. When you trade binary options, you can use your knowledge of the financial markets to make forecasts. There are also plenty of trading indicators that can help you in your decisions.
If you skip learning the markets and you enter into binary trading with some great expectations for profits, you will soon find out the harsh reality. The binary companies are created to make profits from your money, not to make you rich.
We will try to guide you how to take binary options out of the casino.
Don't trust all binary ads
“Make $5,000 per month as extra income!”; “No experience is required!”; “We can help you become a Millionaire!”; “She made $2,500 monthly from home!”
The binary brokers use such ads to attract people who are not financially educated and know nothing about trading. They promise you easy money. You just need to click a button “Up” or “Down,” and you will make 80% profit every 60 seconds. Yes, it sounds like fun, but when you end up broke, it won’t be so funny.
It is better not to trust all testimonials you see. There is no such thing as easy money. The easy money is for the broker when you make a deposit and you don’t know how to read the market.
Don't rely on an account manager to make you profits
If you are a rookie trader, the broker (usually a scam broker) might offer you an account manager who will help you with your trades. This guy will guide you on the trading platform and will teach you “profitable” trading strategies.
He has years of experience (allegedly) and is a seasoned pro with a fake sounding name (usually). He can tell you that he will help double your money, give you advice, trading tips, etc.
Here’s our tip to you: don’t let anyone trade your money, and don’t rely on anyone to make you a profit because, if you make money, the account manager and the brokerage don’t (most of the time). You have to be in charge of your trading. Only you!
You should also have in mind that a fully regulated broker won’t allow an account manager to trade with your funds.
The brokers have an advantage over you
The brokers offer you an average of 80% to 90% payout if your trade expires in the money. When you win, you win 80%, but when you lose, you lose 100%. That means you have to achieve a win rate of around 55% to 56% (depending on the payouts offered by the broker) just to break even. Out of 100 trades, you have to get 55 right. That’s not an easy feat and cannot be achieved by luck alone.
Don’t forget that 55% accuracy will only let you break even (i.e., you won’t make any profit). Flipping a coin will not make you a millionaire, but don’t listen to us, we are not gamblers.
5% to 10% of binary options traders are profitable
We don’t want to scare you away from binary options, but some statistics say that 90% to 95% of all binary options traders lose money in the long run. This means that only 5% to 10% of them make profits. It also means something else: your luck won’t get you inside the elite circle of the profitable 10%. Maybe you’ll get lucky today or tomorrow, but eventually, your luck will run out, so learn to trade the market. Don’t gamble on it.
Don’t go into binary options with expectations of easy money
If you are watching YouTube videos or TV advertisements, you might think that making money with binary trading is the easiest thing in the world. We are sorry, but that is simply not true. As we already mentioned, most of the traders lose money in a long run, so you need to carefully consider your approach to trading. Are you going into binary options to easily become a millionaire, or you are ready for some hard work?
To become profitable requires a lot of experience and knowledge
If you approach binary options with a gambling attitude, the odds are skewed against you, so you have a better chance of making money in a casino (and you get free drinks too). However, all that changes when you decide to be a real trader with a business-like approach to binaries. As you know, nobody was born a businessman or a trader, so you have to cultivate your skills. You have to be diligent about your work and ready to invest many hours and patience into your education.
You have to start studying fundamental and technical analysis
You should start from the basics and focus on technical and fundamental analysis. Find the most important economic releases that are likely to move the markets and begin to study them one by one. Later, when you read daily analyses from FT or WSJ, you will see the connections between one release and the relevant market reaction. Thus, you will build your knowledge in small pieces as you develop an overall picture of the global economy.
You need to establish a strong strategy to follow
Last, once you have accumulated enough knowledge, it is time for trading, and you need a strategy, a set of rules that will give you consistency. There are hundreds of strategies around the web, so there is a chance to be overwhelmed. You will do better building your own strategy, which will suit your level of knowledge and the amount of time you can invest.
Of course, you will need to test your strategy first to see whether it performs well in all market conditions, and once you’ve done that, stick to it and follow it to the letter. Remember, you will not find the perfect strategy, with 100% win rate, but what you are looking for is consistency and more than a 56% win rate in the long run.
Ultimately, it all comes down to your approach to binary options: if you are looking for a quick thrill, you will probably be attracted to 60 seconds options. If you are too lazy to learn and work, you will allow your account manager to trade your money, and if you are too naive, you will believe that trading is easy and that profits are almost guaranteed.
All these possibilities are forms of gambling, so you have to make a choice right from the start: do you want to trade or gamble with binary options? Both are possible, but only one can bring you profit in a long run.