One of the easiest ways you can waste money is gambling. Whether it’s casinos, slots, card games or betting, gambling may take many forms, including that of investments. Opposite to casino games, investing in the stock market is a socially accepted way to spend your life savings, since people commonly believe you are making an informed, rational decision. Most of the times, there are professional stock brokers to aid you, should you opt to hire them for their services, so it all seems very attractive and legitimate. However, especially when it comes to online stock trading, gambling has found its way as an attitude among stakeholders and online stock brokers. In some situations, statistics indicate that you are exposing yourself to a risk similar to gambling, even if you choose to trade binary options.
Who oversees binary options?
Binary options have been one of the most popular ways to invest in online stock trading for these past few years. Besides the fact that you can enjoy some of the best online stock trading experiences from your very own personal computer, binary options present investors with a fixed risk, unlike regular stocks. On the other hand, the profit is also limited, but to what degree this holds true is up to your brokerage. Since we live in the age of IT and the Internet, most users opt to perform binary options trading by using an online stock broker. Those of us who do not have tens of thousands of dollars at their disposal might also be willing to switch to the services of an online discount broker – after all, it’s not like their customer service is worth all of those taxes.
Still, there’s a good reason why there are such few binary options markets in the U.S. The SEC commission has strict regulations when it comes to binary trading, particularly because it’s so easy to turn this type of stock trading into unfairly profiting from investors. A plentiful of online stock brokers have introduced binary trading on their platforms, while other websites have emerged with the sole purpose of allowing people to buy and sell these sorts of equities. For U.S. based markets, whether online or not, make sure that you are dealing with a broker that is SEC approved before signing up. For the rest of the world, choosing an online broker or, alternatively, an online discount broker to trade binary options with should be your biggest concern, since there is no commission regulating this practice at an international level.
The simplest way to avoid gambling when trading
The only possible way to avoid gambling with binary options is for you to perform extensive research regarding a particular broker’s policies and contracts. The overwhelming majority of binary options brokerages offer clients the possibility to purchase sell or put contracts that have a fixed price. If the broker chooses the price, then there is very little that stands between them and a casino where you gamble. Here’s a simple way that can help you figure out whether you’re about to gamble your investment fund or actually perform some intelligent trades: if an online stock broker offers fixed prices, calculate your return probability. You do this by establishing a round number of trades, say 10 and you make the win/loss percentage equal, meaning you made 10 trades out of which 5 ended up in the money, whereas the other 5 did not. In this case, what do you stand to gain or lose?
Factual example of calculating your return
To put things into perspective and see what can happen to you in the long run, make this calculus for 1,000 trades. To exemplify, we’ll take an online discount broker that offers put options at $50 for the currency exchange market. If you are right, you stand to gain $35, but if you are wrong, you get $10 back. People are under the impression that trading in this manner could not be further from gambling. After all, you don’t lose everything, because even if you’re wrong you get something back. But are they right? Let’s perform the return probability test on this sort of binary option possibility. To make things more interesting, we’ll have more trades won than lost. For 530 won trades you will gain ($35×530) $18,725. For the rest of 465 trades that you lost, your funds will go down ($40×470) $18,800. This means that for your trading effort, which can amount up to a few months, you stand to lose money. In fact, in order to break even you would have to be right 53.1% of the time.
Things can get worse, as most online discount brokers have an even lower percentage of return. For $100 binary options that bring you $70 for a win and $15 for a loss you have to win 55% of times in order to break even. These statistics should serve as a preliminary research to your decision regarding the investment funds you have available. Binary trading in this manner is most likely going to dwindle away your finances unless you are a professional trader that does this full-time.
Automatically trading binary options
Short-term speaking, the probability to lose money is even higher, as it becomes impossible to determine whether in the next 5 minutes a stock price will go up X or Y amount; unless an astounding event takes place – in the lines of Apple going broke or Europe and the U.S. paying off all of their debts. Therefore, much like in the case of gambling, investors and clients rush to purchase options that seem likely to end up in the money. Should the person be adequately informed about their decision, it will be a sound one, but most individuals do this recklessly, seeking to gain back what they lost or gain even more if they receive positive feedback. In order to avoid gambling with binary options, never make far-fetched purchases of short term binary options and choose your online discount broker wisely.
The best case scenario for any investor is to work with a brokerage such as Banc de Binary, a platform that avoids gambling by allowing users to choose their options. The difference lies in the expected return, because the closest it is to neutral, the more power is assigned to your decision.