Over the past few years, a new way to trade has hit the scene called Binary Options which have suddenly become all the rage but is this the right way to go. Now a number of new brokers that have come on through offering the service is quite staggering such as 24Options, Bull Binary, TopOption and many more.
These sort of sites appeal to the same sort of people who play online poker and slot machines but due to it being linked with the financial markets, it seems more legitimate and respectable. But don’t kid yourself as this is not even close to real trading and is as close as gambling that you can come without visiting the bookies. Currently, around the world, they are banning advertising from these companies. This has already happened in France with Denmark, the Netherlands, and Germany looking to do the same.
The Times of Israel has in recent months been detailing a massive fraud by Israeli binary options firms which they have dubbed the Wolves of Tel Aviv. These firms are offering customers the opportunity to make short-term investments but are in fact using various rouses including misrepresentation, manipulating trading platforms and refusal to return client deposits.
What are Binary Options?
A binary option is a contract that is created that gives the buyer the right to buy an underlying asset at a fixed price, within a specified time frame. The option must be held until expiry and cannot be exercised early like normal options. Due to this, it means you are left guessing what a certain price will be in a short time frame which even the best investors in the world would not try to do.
The Mathematical Issue
The main benefit they try to offer is a fixed risk that you can control and providers will often say that it offers large gains, small costs but is this reli true? Let’s look at an example of a trade you can take. A certain brokers website offers to pay 71 USD for each successful 100 USD trade you make. If you lose then you only get back 15 USD. Just looking at this mathematically you need to be correct over 54.5% of the time to come out on top. These are worse odds than you get on the roulette table. Even in the professional world many trades can be profitable off getting 25% of trades correct as the wins will outweigh the losses but this is not even the case with Binary.
One major warning is that many of these brokers are not even regulated, so when push comes to shove, it becomes the financial wild west where if you have been one of the very small amount of traders that are profitable, just cross your fingers and hope you get the money back.
If you are looking for a hobby or have some extra funds to trade the markets, there are many ways to go about it but Binary Options would be the last place I would recommend you put your money.
What I have seen so far
Speaking directly with clients who have opened accounts with Binary brokers I have heard many stories such as refusing to return cash. Many new traders eyes bulge at the deposit bonuses many of these brokers offer, the secret, accepting them could be the worse mistake you make.