Are binary options a form of gambling

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Demo Account!
    Free Trading Education!
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  • Binomo
    Binomo

    Good Broker For Experienced Traders!

7 Binary Options

Are you also still doubting whether binary options trading is gambling or not? Let us answer all your questions in this article.

Binary options trading is a hot discussion topic anywhere in the world. There is a lot of information out there and it is difficult to make sense of it all. And the truth is that there is really false information out there and, as a result, a lot of false conclusions are drawn from it.

This article will attempt to cover all the major questions around whether or not binary options trading should be classified as gambling or trading and whether it is a legitimate financial instrument.

If you have read our recent update on binary options regulations around the world, you have probably noticed that many countries are not sure how to classify binary options. Some choose to consider it a financial instrument while others still treat it as gambling. This shows a very weak understanding of the industry by even most qualified institutions. Some seem to imply that there is only one type of binary options when in fact there are many. For instance, there are those binary options that are fully regulated, trading on the NYSE and NADEX. There is also Binary Options Exchange. where one is able to be a writer and a seller of binary options.

Gambling or financial instrument?

Let’s set one thing straight and define once and for all what is gambling. If we look up this word in Merriam-Webster dictionary which is one of the most widely used English dictionaries out there, we’ll find out that gambling is defined as “to bet on an uncertain outcome”. Isn’t trading of any kind corresponds to this definition? Well, it really depends on what you looking at. If it’s an individual trade we are looking at, then it might be. But if you are trading a system that has a positive expectancy, then there is nothing unpredictable about it – you are making money!

So maybe it’s better to take a different approach to defining what is gambling and what is a financial instrument? For that, let’s try to answer two questions:

  1. What are we trading? If it’s not a system that overall has a positive expectancy, then the outcome it truly unknown and we are gambling, not trading.
  2. How are we trading? If we are following a trading strategy that has a positive expectancy, then everything is fine. If not, then we are gambling.

Let’s now look at some examples to illustrate this:

  1. Slot machines in a casino. Without any doubt, this is gambling. The outcome is unknown and if you play long enough, you will surely lose. Everyone knows that the house always wins.
  2. Trading with a system that has a positive expectancy. This is clearly what we define “trading”, as over a period of time you are sure to make money.
  3. Trading stocks without a system that has a positive expectancy. Now, this is gambling. If there is no sure positive expectancy, then we are still likely to lose money over a long period of time.

Expectancy type settles the dilemma

So, coming back to the question of whether or not binary options should be considered as gambling, we have to carefully look at each category of binary options and decide whether it is possible to develop a system with an overall positive expectancy. If such a system cannot be developed, then this following up on it is gambling. However, if there is a possibility of developing a system with a positive expectancy, then this is called trading a viable financial instrument.

If you on the surface of trading using OTC (over-the-counter) binary options broker, this might be considered as gambling. On the other side is always a broker and the odds always in broker’s favor. This is because in this situation you can only a buyer here, buying a put or call option. And even if you are right, you are still to make less than what you are risking. For instance, if your broker offers 80%, you are to make only $80 on the trade where you are risking $100.

So the only way you can be sure you are trading and not gambling is to develop a system that has a positive expectancy. For this, please follow our Education series to find out more about various strategies and options types. Educating yourself and practicing is the only way you can be sure that you are trading using reliable financial instruments.

Is Binary Options Trading a form of Gambling?

Options Bro

It’s a question that has been asked time and time again: are there actually any strategies for binary options trading? This is a highly debatable question. A lot of traders won’t touch binary options with a ten foot pole because they don’t believe there is any skill involved with binary options. Other traders swear that there are specific strategies that result in successful trades.

So what’s the answer? Well, the simple answer is that we just don’t know. Because of the timeframes for binary options are often quite narrow (30 seconds), it becomes increasingly difficult to implement some type of strategy that will “predict” the market.

It’s no secret that binary options have a massive stigma. They have mostly been compared to gambling, as opposed to investing. Obviously all forms of investing carry a high degree of risk, but there has to be something traders can do to mitigate risk for binary options, right?

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Demo Account!
    Free Trading Education!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Good Broker For Experienced Traders!

Fundamental Analysis:

Fundamental analysis involves looking at a company, commodity, etc. and making investment decisions based off of fundamentals. This could be supply and demand, outstanding debt, user growth, the list goes on.

The problem, however, is that when one tries to apply fundamental analysis on a particular market with a 30 second timeframe. Can a trader look at a fundamental factor, like last quarter’s revenue for a particular stock, and then make an accurate judgement on where the stock is going to trade in the next 30 seconds?

It’s highly unlikely. Although there are many quantitative firms that do precisely this, their time frames are often much longer. If a trader wants to go long or short a company with a timeframe of several months based on fundamental analysis, this starts to make more sense…

The problem with binary options is that they basically necessitate a short-term market outlook, and forecasting markets on an intraday basis is extremely difficult, if not entirely impossible. To top it off, binary options don’t offer you an equal win/loss payout.

What this means is, even if you’re correct in your assumption of where the market will be, you will only receive roughly 90% of your original wager. This is how binary options brokers win in the long-run.

Technical Analysis:

This is probably the most used form of analysis with binary options trading. There are a handful of traders who claim they have the rare ability to forecast markets with a narrow timeframe. But they key is consistency. Even if a particular trader can accurately forecast where a currency pair is going to trade in the next 30 seconds, to be successful, the trader needs to have a an equal win/lose payout.

Meaning, the trader can’t risk $100 to make $85 with every trade and expect to be successful with a 50/50 bet. It’s just not mathematically possible. Technical analysis alone would have to give a trader such a mathematically large advantage to compensate for the reduced payouts that it would be unrealistic.

Conclusion

If you want to trade binary options, you should do so at your own risk. Furthermore, you should be fully aware that fundamental analysis and technical analysis just simply won’t do much for the narrow time frames that binary options require.

Therefore, it seems binary options have more similarities to gambling than they do investing.

What Are Binary Options & How do They Work: Complete Guide

Binary options are a straightforward form of derivatives that differ slightly from vanilla options and convey fixed profit/loss and risk to investors. Binary options present a simple question of whether or not the price of the underlying asset will be above or below a strike price at a point in the future.

Most binary options trading occurs outside of the U.S. as they are strictly regulated by the Commodities Futures Trading Commission (CFTC) and are only available in specific formats on regulated exchanges in the country.

Binary options are simple methods for hedging risk or speculating on the price of multiple forms of assets with a predetermined risk and potential for profit or loss. However, many binary options are considered gambling or fraudulent, which is why they are strictly regulated in the U.S., and illicit outlets are pursued by FBI worldwide.

Several outlets for cryptocurrency binary options are available. However, they are not recommended for beginners as they carry high risk and are involved with an emerging asset class that is still undergoing regulatory maturity. Facebook, Google, and Twitter all banned specific binary options advertising along with cryptocurrency ads last year.

Difference Between Vanilla Options and Binary Options

Financial options are derivatives contracts that offer an investor the right to buy or sell an option representing an underlying asset at a strike price at a specific date. Investors are not obliged to buy or sell the option; they only receive the right to do so at an agreed upon price. Investors can profit or sustain losses on the difference in the price of the asset compared to the strike price.

American and European options differ in one significant measure. Traders of American options can buy or sell the option any time before the expiration date of the contract while European traders have to wait until the expiration of the contract to exercise the option. In American options, traders can exercise the option before the expiration of the contract to lock in profits or minimize losses, however, profits are usually reduced if the contract is exercised before expiry.

Options are great for increasing earning potential without buying on margin or borrowing. Vanilla options enable investors to actually own the underlying asset in the derivative contract, and profits/losses vary depending on the extent of movement of the asset’s price.

Binary options differ from vanilla options in that traders are not given an opportunity to hold a position in the underlying asset. Instead, profits and risk are typically fixed on a per option basis — the overall profits are not affected by the extent of movement in the underlying price of the asset, only whether or not it was above or below the strike price.

How Binary Options Work

Mot binary options are traded outside of the U.S., and they can be used as speculation for a suite of assets such as stocks, bonds, commodities, and currencies. They are very straightforward but contain nuances depending on the broker and in what jurisdiction you are trading.

For example, binary options trading via a regulated American exchange would work as follows for a forex option.

If Exchange A offers binary options in the U.S., all the options would either expire at $100 or $0 with traders capable of exiting before the expiry of the contract. A binary option presented to a trader for the EUR/USD trading pair would be:

“Will EUR/USD trade above 1.2000 at 12 AM on April 1st, 2020?”

Traders can either choose to buy or sell the option. If they buy, then they expect the price of the EUR in USD to be above 1.2000 at 12 AM on April 1st, 2020. If they sell, then they presume the price of EUR in USD will be equal to or below 1.2000 at the contract’s expiration on April 1st, 2020.

If Alice expects the EUR/USD pair to be above 1.2000 at the expiry date, and the current ask price is $40 for the option, she can buy the option contract for $40. If the EUR/USD pair trades at higher than 1.2000 at the expiration date, then Alice’s contract is now worth $100. Subtract her $40 from $100 and her profit is $60. If the pair trades below 1.2000 at the time of expiration, Alice loses her $40.

In American options., Alice can exit her position before the April 1st, 2020 deadline — in European binary options, she cannot. For reference, not all binary option outlets operate with $100 binary options, but that is the standard and is what U.S. binary exchanges like Nadex use.

Alice could even acquire multiple binary options for her position. So, if she bought 3 of the same trading pair options, her cost would be $120 for a potential profit of $180.

Notably, Alice’s losses will never exceed the amount she spent on the option (i.e., $40), presenting a discernable risk/reward ratio before making the trade. Her profit or loss does not depend on the extent of the trading pair’s movement, only that it is above or below a certain threshold — payouts are fixed.

Binary Option Brokers

There are a few brokers which offer Binary Options trading, perhaps the most well known is IQ Option, which we have covered before on Blockonomi. IQOption actually have a free demo account which gives you $10,000 so you can use that to see if it’s for you or not.

Before deciding to trade Binary options, you should make sure you are well aware of the risks involved, it’s possible to quickly lose money quickly if you do not know what you are doing; they are not for beginners.

You should also be aware of the laws surrounding them in your country – the brokers will let you know whether your country is covered.

Here are the brokers we have reviewed:

Advantages of Binary Options

Binary options are straightforward and excellent for traders who wish to engage with various asset markets with a fixed risk and reward before trading. Binary options are typically used for speculation, but can also be used to hedge risk.

American options are more ideal as they allow traders to exit their position before the expiration of the contract, but most binary outlets around the world do not permit exiting before contract expiration. The U.S. binary exchanges are regulated by the CFTC, and the leading exchange for binary options is Nadex — based in Chicago.

The fixed risk of binary options is their critical advantage. Risk management can be a stressful and complicated ordeal in broader financial instruments and markets. Pinpointing risk and control clarifies speculation opportunities for traders not looking to deal with more complex financial vehicles.

Disadvantages of Binary Options

Regulation of binary option outlets is fragmented, and the onus is on traders to do their own research and properly vet binary option exchanges outside the U.S. Many governments classify binary options as high-risk and unpredictable — akin to outright gambling.

Binary options trading is banned in Israel, and the European Union banned binary options for retail traders last year and recently extended the ban.

In general, binary options carry considerable risk, no matter what jurisdiction or exchange used. Tightly regulated exchanges in the U.S. are the most cautious move for trading binary options, and trading outside the U.S. is hazardous for retail investors.

Binary options involving cryptocurrencies and digital assets are even more precarious as they are not regulated, cryptocurrencies are highly volatile, and the industry is already predisposed to endemic fraud and scams.

Conclusion

Binary options are a simple proposition for market speculation of diverse assortments of assets but carry inherent risks. The ability to discern precise risk/reward degrees from trading with binary options is useful for traders looking for a straightforward investment tool. However, trading binary options should be consigned to tightly regulated exchanges in financially prudent jurisdictions.

Why trading binary options and gambling are quite different things

Binary options attract more and more attention, because it is a great way of earning considering the simplicity of their usage in the buying process. Only imagine next situation: deal with expire time from 30 seconds and up to several months, approximately may make a profit of about 80% of the total cost of the option. This was the real reason for the rapid growth of interest in this type of trading in the financial market.

Is trading binary options gambling or it is completely different things? In order to really answer this question intelligently, at first, remind yourself what is gambling.

The goal of each and every gambling is targeted at inciting excitement in player. For example, the well-known card game “Poker”, which is all considered gambling. But does it really evoke strong emotions in people? In fact, an ardent gambler, she’s probably really excited, but, for example, for the dealer is nothing more than a job. Hardly professional croupiers will argue that he is actually a gambler. In any case it is a link that is definitely allotted role in this game and not much more. In other words, the perception of the game. It’s like in a hockey game that for fans this is a real game, and for players work.

Therefore, given the above induced opinion and taking into account he binary options market, where people perceive the Forex trading, as a game, therefore, likely to experience the passion. Therefore, it is logical to assume that his position will be similar to any gambling. At the same time, the person who objectively looks at things, has a real understanding of what is happening and to adequately assess their capabilities, never will be related to binary options trading as gambling. The essence of the perception, not in the lesson, and what people will do in a given situation.

Brewing logical question: why the gambler is not a bit of work on binary options? And it’s all quite simple:

• the player originally will be allocated to the trading process as a game — hence the action often will be ill-considered and frivolous;

• more than likely, these people will not learn anything, relying on fart and perceiving the learning process is a waste of time;

• high embernet the occurrence of excessive expectations, often will be associated with a profit in the first seconds.

BINARY OPTIONS AND GAMBLING

Very often you can hear that the options trading looks like the well known game “Roulette”, wherefore winning is impossible. First and foremost, to win here, obviously, the truth will fail, however, to start earning in a very real way. additives important here is the approach to this activity and its human perception. These two things resemble one another due to the fact that roulette as well as in options trading, you can make bets at random, or to calculate all possible combinations to remember past results and calculate the probability of an event.

A similar result in trading binary options — someone will come for the freebies, the result is playing will deposit lose, and someone will start to earn real money by earnestly studying, examining the experience of other successful traders, analyzing the trends and the situation of market, knowingly invented and use technical and fundamental analysis. Trader also needs to be armed for victory.

Anyone who seriously trades binary options never call it a game, because he would not a priori to experience the excitement. In fact, top traders, to achieve real success in this field, will always look at binary options trading soberly. After all, they really understand that the thrill of destruction. Hence, the person who wants does not want to play, but seriously to make money trading in the financial market, he must learn to take seriously, not to be confused with the conventional gambling. After all, the one who wants to, he will always find a 100% similarity in all this, mixing the result of trade and game, when in fact it is quite the different classes.

Little advice for everyone: if you have a feeling of unhealthy excitement during the trading process (similar to gamblers), then right immediately quit with it, because it is well known that emotions still haven’t helped to reach the desired results nobody.

Sadly, but truly – it is not suitable for everyone to trade on the financial market. But anyone with a desire can test himself and check luck, while not risking his own money.

All of this is real by opening IQ option demo account. This broker, as a trusted choice top traders, holds a leading position in the ranking binary broker and offers impeccable service with really great trading conditions. Check it by clicking the button below.

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Demo Account!
    Free Trading Education!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Good Broker For Experienced Traders!

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