Binary Options Are Risky – Don’t Get Involved
This is an opinion article, written by website owner Daichi Hoang based on information freely available online.
In this piece I discuss the binary options industry and why it’s not a good idea for you to get involved.
They’ve been around for a while now and there are endless numbers of “profit system” scams based on playing the binary options market. If you are new to the concept, “binary” in computers refers to a “bit” which can have either a value of 0 or 1 (2 options). In the binary options market, you are essentially betting on the outcome between 2 choices, typically whether a the price of a currency or stock will be above or below a specified value after the timeframe you are betting in.
For example, if the current price of the AUD/USD pair is 0.8000, you would bet whether the price would be over or under this amount after a specified period of time (for example, 60 seconds).
You put down an amount of money of your choosing to purchase this “contract” (note, you are actually not buying the currency pair) and wait for the timer to expire. If at the end of the timer, your prediction is correct, you get paid a fixed amount on your initial investment (usually somewhere between 70-90%).
Sounds easy enough right? Just ride the trend and keep winning? Actually, it’s not as easy as it seems, nor are you getting value from your investment.
Short term markets are volatile and unpredictable
The forex market is volatile and moves every second. You might look at a day chart and notice a trend, but when you are playing inside a 15 minute or 5 minute window, there are plenty of ups and downs that occur during those shorter timeframes. Therefore, is it really possible to accurately predict movements? My opinion is a firm no. Professional traders very rarely look at shorter timeframes than 4 hours so for a novice like you to be playing in a 5 minute window is just crazy.
Low payouts – you may as well bet on black
Given the above, it’s fair to say that picking the right direction in a short time frame for most people would just be down to luck. If so, the payouts that you are getting are much too low. If you go to the roulette table and bet on a colour, you are almost giving yourself a 50/50 chance at gaining 100% (double) your money. It’s not quite 50/50 because there’s a green “0” on the wheel but it’s much better than playing the same guessing game with binary options where for a 50/50 chance (assuming you are just guessing the direction) you only get between 70-90% payout.
If you’re wrong, you lose everything
Remember that you are placing a bet on the outcome of the price, you aren’t actually buying any underlying commodity. If my example above, you aren’t actually buying or selling AUD/USD. You are buying a contract that lasts for a specified time and at the end of that time you either get paid or you don’t. That means if you are wrong, you lose your entire investment. If you were to actually buy the currency in hope that it would go in your direction but it doesn’t, then you would still have the currency in your portfolio albeit at the lower value.
Absolutely not recommended for beginners
I very strongly advise against getting involved. Yes it seems like fast money. Yes, it would be if you could consistently pick winners. But that’s the same as anything whether it be picking roulette numbers, blackjack, properties that rise in value, shares, etc. If you could always pick the winners then life would be pretty easy. I could have listed binary options brokers on this website. But I have a responsibility to make sure that my website visitors are educated and trading safely. Therefore, I will simply refuse to accept any binary online forex brokers who want to be listed here.