Binary Options: Trading or Gambling
Binary Options – Trading Or Gambling?
Binary options trading has risen to prominence in recent years as a way for people to get involved in investment and trading without having to jump through so many hoops to do so. In the past, the older forms of trading had major barriers. The first was a large amount of existing money was normally required to start with. The second was the need to engage the services of a licensed broker who would add service charges and commissions to as expenses for carrying out the trades on your behalf.
With the advent of Forex trading in the 1990s, and then binary options trading in the last 10 years, these barriers have dropped. These newer forms of trading don’t need you to be wealthy already in order to invest huge amounts of money. They also don’t require to hire a broker to carry out trades on your behalf, you’re capable of doing so yourself, with your own software and your own knowledge of the market.
But this dramatic rise in popularity also brings with it a lot questions, sometimes misunderstanding, and even controversy. Binary options trading is a very different kind of financial product from what people are used to. In some cases, the fastest trades can yield a profit in as little as one minute. Because of that, some people have claimed that binary options trading—and even other forms like Forex trading—is little more than gambling.
But is that true? Let’s take a look at exactly what binary options trading is, and the general world of investment, is really like.
The Art Of Prediction
The typical definition of gambling runs along the lines of, “playing a game of chance for money.” This usually means that a wager is made, and, if that wager, or “bet” turns out to be correct, there’s a reward of money based on different factors, such as a collective “pot” of bets, or a payout based on odds, or some other system.
Traditional investment is clearly not like this, since it involves buying things, and then selling them at a later date, with a higher price, in order to make a profit. That’s just classic business practice at work. Binary options trading, however, is a bit different. It’s a financial product that falls under the category of “speculative trading,” and that doesn’t involve buying and selling, but rather, making predictions and putting money down on that prediction. In the loosest sense, that may be considered a “bet.”
Binary options trading works by looking at the price of a particular asset, such as gold in commodities, a corporate stock like Apple, or a currency pair such as the Euro and American Dollar in the Foreign Exchange market. Prospective traders are then given a current price, and the option to choose whether they believe the price, in the trading period of their choice, is ultimately going to go up or down. The result of the trade will have a fixed return provided the broker.
So, for example, a stock is currently priced at $35, and a binary options trader may make a “call trade,” that is, a prediction that the price will go up, or a “put trade” predicting a drop. The trade is listed with an 80% return, and the trader decides to invest $1000 in a call trade. The price of the stock does go up, which means that that the trader now gets $800 in profits.
The Thin Line Between Betting & Calculated Risks
Where gambling and binary options trading part ways are in the environment and implementation that are involved. It’s true that there is a similarity in the idea of money being used to make a prediction. Gambling, however, may involve typical games of chance in casinos, such as roulette or black jack, or perhaps betting on events, such as horse racing or even sporting events.
Binary options trading and other speculation, such as Forex trading, deal in the various financial markets and are completely legal and legitimate forms of trade. There are established, reputable brokers and other trading organizations, fully licensed and overseen by regulatory bodies such as the US Securities Exchange Commission, or the British Financial Conduct Authority that engage in these activities.
And while binary options trading, like many other forms of investment, does have an element of chance or risk to it, it is not primarily determined by chance. Unlike playing black jack, or making a bet on a roulette wheel, randomness is not the major determining factor in how a trade plays out. Instead, understandable, researchable, verifiable market forces are the primary movers and shakers.
Knowledge & Skill Matter
Gambling is really just about putting money down somewhere and hoping for the best. Binary options trading is about having the diligence required to study a particular market and understand what affects it. It may be the volatile world of Forex, or the sudden surprises and role-reversals of the stock market, or the long term game that is the commodities market. In each case, however, it is not just possible, it is encouraged to pay attention to the factors at play. And by coming to an understanding of how these markets work, it is possible to make very accurate predictions about what will happen to a particular stock, commodity, or currency pair. In other words, with the proper education in the market, you’re no longer just guessing at what a binary options trade result is going to be, you’re making a calculated risk that has stacked the odds in your favor thanks to the understanding you have of the financial world.
Binary options trading, like any other form of investment, can yield some significant profits. It can even do this enough to supplement or entirely replace another source of income. But it cannot do with this without diligent effort on the part of a binary options trader. Without a good understanding of the market, and a solid strategy for trading, this may feel like gambling. But with someone who knows what they are doing, it is a series of strategic investments that leads to a reliable profit.