The Ultimate Question Is Binary Options Gambling

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Binary options. Gambling or financial instrument?

From Dukascopy

Binary options are nowadays widely recognized as one of the most accessible ways of getting introduced to financial markets. The pace of penetration in the retail segment has been truly overwhelming during the last 5-7 years, yet even though this type of instruments has undergone a noticeable shift of perception in both investors and market participants minds, we still see no finalized common opinion formed on the essence of that instrument.Let’s try explaining and answering to ourselves what binaries actually are and that are their strong points.

Industry emergence. Following Fx on the way to regulation

The high popularity came at an initial reputational cost for the new asset class. One of the reasons for binaries rapidly gaining popularity was the lack of regulatory framework and industry standards, which ensured a strategic advantage over forex, derivatives other more complex markets in the eyes of emerging start-up brokers. The effort-efficiency of launching a binary brokerage attracted a vast number of undercapitalized market participants diluting the image of the service, leading to the incorrect perception of binary options being more like gambling and a scam rather than trading.

The sites [Binary option brokers] appeal to the same type of people who play poker online. But they somehow have an aura of being more respectable because they represent themselves as offering a form of investing. Don’t kid yourself. These are gambling sites, pure and simple. It’s probably just a matter of time before regulators move in on them.Gordon Pape,

The gambling parallel was, unfortunately, widely exploited in promotional campaigns run by market participants. Balancing on the edge of two confronting definitions (gambling vs. trading instrument) has raised numerous discussions within the trading and expert community, both sides having their supporters. Gradually this debate fostered a view, which I personally find most reasonable, that primarily questioned not the essence of binaries, but mostly the suitability of any asset class to a particular individual or strategy. Since one of the meanings of gamble is taking risky action in the hope of a desired result or staking something on a contingency, pretty much any financial instrument may be considered as an object of gambling if approached without proper prudence.

Judging by this definition, a lot of what we do in daily life is gambling. Binary options are gambling much like other financial instruments, tangible or intangible.

Indeed, opening an overleveraged Fx position with a micro-account, opening a leveraged CFD position without stop-loss on a stock the trader does not have a profound knowledge about, going into a derivative while not building a real hedge does not seem getting any further from gambling in the common perception of that concept. You may have grasped that the common trait of the last 3 examples is poor risk management.

Let’s be honest, any investment activity is gambling. Venture capitalists also gamble when they invest into start-ups, there is no guarantee that the company will survive let alone bloom.

Poor risk management usually originates either from the intended will to speculate with high risk or from the unsuitability of the instrument to the particular client, which in its turn comes from the lack of regulation in client assessment, informing and general education. And here again we return to the initial problem with binaries – the lack of regulation.

Fortunately, we already are seeing a retraction of this tendency towards a closer regulatory oversight, renowned financial market participants embracing the binary offer in their product range and traders exploiting the original strong qualities of binary contacts in their trading strategies. Cyprus CySEC was the first watchdog to officially start regulation of binary option brokers in 2020, while many of other EU jurisdictions kept viewing binaries as “game of chance” and directed requestors towards their local gambling regulatory bodies.

Things started changing fast in 2020. The year started with a landmark decision by Rotterdam court ( Source ) on the OptieClub case, where the Netherlands financial regulatory body (AMF) was forced to issue the first licence to a binary options broker. The watchdog had rejected the request earlier despite falling into the financial markets product definition under MiFID regulations and directed the broker to the Dutch Gambling commission. Similar news are coming from the UK where Her Majesty’s Treasury issued a consultation paper considering regulating binary options as financial products.

The UK Government is consulting on proposals to treat binary options as a financial rather than a gambling product.This would mean binary options would be regulated by us, the FCA, in line with practice across most of the EU, and no longer be regulated by the Gambling Commission.UK FCAOfficial Statement , 26/05/2020

Both the Dutch court decision and UK initiative are indications on an impending paradigm shift that might open the gates for legitimisation of binary brokers seeking to get solid regulation in the EU market.

Essentially, binary options industry is following the same path the Forex markets started 15 years ago: starting as a newly emerging speculative market dominated by non-regulated participants, low client confidence and ambiguous image retail, Fx turned into a well-established industry, overseen by financial authorities in virtually all developed countries; it is now offered in the product range of numerous commercial banks. Binaries are now making the same journey towards regulation and transparency and seem to be doing it faster than Forex did in the past.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Top Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Education How To Trade!
    Free Demo Account!
    Big Sign-up Bonus!

  • Binomo
    Binomo

    Good Choice For Experienced Traders!

At Dukascopy we have been feeling the shift of attitude to binary options especially strongly as our decision to enter the binary market 2 years ago was being taken amidst reported reservations regarding the suitability of this service to a well-established and reputable broker. On the contrary, we saw a clear competitive advantage in the fact that binary trading will be offered by a Swiss-regulated bank via proprietary platforms. We believed that this should contribute to the diversification of the market, reinforce traders’ security and offer an alternative to standard solutions thus ultimately improving client confidence to the entire market segment.

Binaries as simple, yet secure and useful financial instrument

Simplicity, straightforwardness and transparency are considered to be the key inherent traits of binaries. Absence of commissions, binary result (i.e. there exists only 2 outcomes), which implies possibility of capitalizing with maximum payout on minimal market movements; contract amounts as low as 1 USD and available short timeframes, sometimes less than a minute.

Despite the doubts of being proclaimed speculative, binary options should be advocated as possessing all the characteristics of a financial instrument that can be used to realize investment goals.

Binaries have particular attraction for investors whose strategies involve trading on economic news. News trading is a sophisticated investment activity that at minimum implies the following:

  • Knowing when news are out and in what countries;
  • Being capable to carry out technical and fundamental analysis to assess the news impact;
  • Picking a currency pair/pairs that are expected to be impacted;
  • Forecasting the needed duration of an option (e.g. 5 minutes or an hour) to avoid the interim noise volatility before and after the news is out;
  • Correctly and carefully placing a pending order and describing it.

Noise volatility (volatility spikes) is a real problem for news traders that can be successfully dealt with using binaries. Here is a real-life example that demonstrates the impact of volatility:

Example 1 : ECB Minimum Bid Rate (act. 0.50%, exp. 0.50%, prev. 0.75%)

Date and Time: 02/05/2020 11:45 GMT

ECB has reduced the base interest rate by 0.25%, which elicited a downward pressure on the EUR/USD. However, a trader who correctly interpreted the news might come across a noise volatility that could have resulted in interim losses on a spot position. Binary option would be more preferable in this situation.

Example 2: ECB Minimum Bid Rate (act. 0.50%, exp. 0.50%, prev. 0.75%)

Date and Time: 02/05/2020 11:45 GMT

Unemployment claims came out significantly lower than expected. However, the investor who correctly predicted it and forecast downward movement of USD/JPY would face an unpleasant surprise when the pair hiked by 50+ pips. After the unexpected spike the pair abated as expected. An investor with short spot FX position could have been closed on margin cut or voluntarily closed the losing position. Binary option would again help the trader pass over the spike and gain on the correct forecast.

Binaries also feature a set of important qualities related to trading/execution risks management. First is the independence of market depth, which means technical absence of slippages. Second, predefined maximum profit and, most importantly, maximum loss make it impossible to lose more than the amount of the contract. The latter also implies impossibility of driving the account into negative equity even under market force majeure conditions like those observed during the CHF soar on January, 15th 2020 after the Swiss National Bank’s surprise decision to abandon the EUR/CHF floor.

With all of the above features binary options are making another major step in turning markets more accessible to a retail trader, comparable to forex instruments going into electronic trading on retail platforms 2 decades ago.

Adding a unique touch to binaries in Dukascopy

Being a banking group with an considerable IT development expertise Dukascopy undertook the development of an in-house binary service and trading platforms (Web, iOS and Android), which ensured considerable flexibility and freedom compared to the common approach of going into a white-label with one of the major platform vendors, an approach that had become standard at that time.

Seeing binaries as a new area for us, we went for a conservative start with offering the classic yet most widespread Up/Down binaries on currency pairs. Our flexibility allowed us offering features that were and remain unique in the market even for that basic binary options type: fixed payouts with a default level of 90% , which still remains among the highest in the market, custom-set option durations of 1-60 minutes with 1 min discretion. To achieve total transparency of the price feed we are using the SWFX (Swiss Forex Marketplace) flux, i.e. the same quote source as Dukascopy’s Fx/CFD trading platforms. Another valuable feature highly appreciated by technical traders are the fully-functional charts with over 180 indicators and drawing objects available in the Web Binary platform.

After the service was successfully launched for the clients of Dukascopy Group, binaries became available as a separate module in the Dukascopy White-Label partnership program.

This year we extended the instruments range with Daily Stock Options giving access to a session trading of over 1500 stocks from all over the world and Pair binaries on stock/index combinations. Unlike the conventional approach of offering a short fixed set of pair combinations, our traders can build their own compositions.

Many updates and new features are now in the pipeline. This includes further integration of our products, allowing automatic creation of new trading subaccounts and platform improvements. To harmonize the offerings available to Fx/CFD clients and binary traders we are now working on launching an equity bonus program for binary accounts. Finally, new binary instrument types, including the Touch binaries and their variations, are on the way. Again, as with Up/Down options, we intend to continue re-thinking conventional instruments while striving to add a unique element to our service.

All the above mentioned unique features of our binary options are fully available to the retail clients thanks to Dukascopy Europe. Binary options accounts with Dukascopy Europe are available for contract sizes from 1 USD and an initial deposit of 100 USD. I invite you to get your own experience of binary trading with us at www.dukascopy.eu

Binary options trading project lead

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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?

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.

Binary options trading vs Gambling

Binary options and Gambling

There are many articles circulating on the Internet these days that tend to equate. Such articles tend to degrade the ‘trader’ and replace the word with ‘trader’ with ‘gambler’, all in an effort to discourage binary options trading. While the purpose of such articles is unknown those curious about binary options trading would definitely find the article discouraging them from trading. So is binary options really just gambling or are such kind of articles misleading?

Investment = Speculation = Risks

Ever come across a finance portal or a website that talk about stocks or some other financial markets? In most likelihood you might have come across the disclosure about how risky it is to invest and that financial investment is not suited for everyone. Such kinds of disclosures are required by law and are often seen on even some reputable websites.

The truth about investing is that it is nothing but gambling on a large scale. However, there are not many articles that are written about such investments… Bonds, stocks or even real estate. The fact is that financial investments are risky and in a way is a gamble. The chances of making a profit on an investment is always 50 – 50, just the way you flip a coin for heads or tails. So doesn’t this by definition equate to gambling? And how different is binary options from the above, where speculation for a price rise or drop is based on the time the contract expires?

The business of financial speculation is vast. In other words, it is commonly referred to as speculative trading which ironically is employed by some well known globally established banks. Binary options, as we know are a derivative of the underlying security. Although it might differ in the way they are traded, the basic goal of binary options and forex or even stocks is the same. Buy at a low price and sell at a high price. With binary options, it is a little bit different as a trader bets on the price direction within the duration of the contract’s expiry time. This leads us to question… so aren’t the big banks gambling too?

One element that is common to the above is risk. Gambling is risky and so is financial investment. However, the risks are better managed when they are more calculated. For example, it is considered a worthwhile investment to risk a small amount in hopes to double or even triple the investment amount. Such an approach is referred to as taking a calculated risk. Trading is no different to taking calculated risks. For example, one of the articles mentioned previously, we talk about how to profit from news trading and short term binary options contracts. Such kind of a strategy gives us a calculated risk. Meaning that, a trader invests an amount in hopes of making a profit based on a common underlying theme that plays out in the market day in and day out.

When does trading become gambling?

Trading becomes gambling when the trader begins to trade on emotions and gut feel. Greed and fear rule the emotions here and it is easy to get drawn into such type of trading. Unfortunately, most traders tend to fall for this trap, which is why it has led to so many critics that call for binary options or trading as a whole as gambling and nothing more.

A gambler would trade simply based on gut feel or be engulfed by emotions and starts to trade CALL and PUT options for example with no real reason why.

A trader on the other hand, researches, calculates the risk and ensures that the trade that they make gives back more than the amount that they risk.

Once a trader understands this basic philosophy, trading no longer becomes gambling.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Top Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Education How To Trade!
    Free Demo Account!
    Big Sign-up Bonus!

  • Binomo
    Binomo

    Good Choice For Experienced Traders!

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