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Binary options are growing in popularity: Here's a case for and against it

US-based financial education website Investopedia said in mid-August 2016 that it saw "a 545% week-over-week" leap in pageviews of its article on trading binary options in the US. The implication is that people are increasingly becoming aware of binary trading. With a 17-year-old now driving a Bentley after hitting it big in binary options trading, chances are its popularity will continue to grow.
Considering all of these, it’s a good time to learn about this relatively new trading programme. In here, we’ll talk briefly about what it is and make a case for and against it.

Source: Pixabay
Source: Pixabay

Binary option explained

Fundamentally, binary options are based on a straightforward “Yes” or “No” proposition. A typical binary options trade proposition for crude oil would come in the mold of, “Will the price of oil be above $45 at 3PM today?” On the platform being used, the trader would have the option to place a trade on a ‘Yes,’ referred to as a “call option”, or a ‘No,’ which is called a “put option.”

The trade will be placed against a certain amount decided by the trader. If at the set time the trader’s choice was correct, they would be credit a certain percentage wining which would be known before even placing the call or put trade. On the other hand, if their choice were wrong, they’d lose a pre-defined portion of their trade.

A typical binary option platform offers trades on commodities, forex, stocks and indices to give traders the opportunity to trade the financial assets they’re most comfortable with.

The case for binary options

Unlike many other trading programs, binary options have the unique selling point of automatically placing a cap on your risk. If for a trade that says, “Will the price of oil be above $45 at 3PM today,” you traded $20 saying, “Yes, it will be above $45 at 3PM today,” your maximum risk $20. Under no circumstance would you lose more than that amount on that particular trade.

However, it’s worth noting that, as your risk is capped, the upside of binary options trading is also capped. Still, though, you’re unlikely to find yourself in the position of a stock day trader, who is required to have a margin account, and is at risk of losing all his money at a go.

In fact, according to Investopedia, every binary option settles at $100. By implication, it’s impossible to lose more than $100 on a single trade.

Another good thing about binary option is that it provides an avenue to profit from financial assets’ response to sensitive events without the typically huge capital commitment of day trading.

This kind of makes active financial assets trading more accessible to more people. Perhaps, this is the main reason for the growing popularity of binary options. In essence, folks who can patiently learn the ropes of successful active trading, but who have been hitherto limited by lack of capital can start their trading career with binary options trading.

The case against binary options

There is a hot argument in the binary options space on if binary options is trading or gambling. Yes, this question has been asked of equities investments as well. But it has never been this intense. So the fact that this argument is so intense suggests that it has features we’ve come to know belongs to gambling. In fact, Belgium became the first European country to ban binary options, saying it lacks any real connection with the economy.

Supporters of binary options would say it is based on actual underlying financial assets whose price movements can be predicted based on certain realities we’ve come to know about them. This is different than, say soccer gambling, that you use unproven trends to make predictions.

However, unlike conventional investments that you buy a part of a company through its stock, the money used in binary options trading almost always stays with the broker since binary options are unregulated. In fact, antagonists of binary options would say that the money you win is the one lost by someone else – and vice versa. This feature makes binary option unethical relative to conventional investing and trading.

Bottom line

In summary, expect there is a law in your country that prevents binary options trading, there is nothing wrong with binary trading in itself. However, you need to be aware of the risks involved before venturing into it. At the minimum, you should expel any thoughts that it can make you rich within a short period.

13 Sep 2016 14:06

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About Boris Dzhingarov

Boris Dzhingarov graduated UNWE with a major in marketing. He is the CEO of ESBO ltd brand mentioning agency. He writes for several online sites such as Tech.co, Semrush.com, Tweakyourbiz.com, Socialnomics.net. Boris is the founder of MonetaryLibrary.com and cryptoext.com.




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