Binary options are touted by brokers as a serious investment product where high returns are possible in a very short period of time. Consumer advocates, on the other hand, are concerned about binary options, as they consider trading this highly speculative product primarily as a dangerous game of chance in which only the broker ultimately wins. Furthermore, the fact that binary options are offered not only to online brokers, but now also to speculators, does not put trading in a positive light. We have looked more closely at the concerns of the critics and want to give our readers an objective analysis of the opportunities and threats of binary options.
Are binary options gambling?
Binary options are constructed as simple financial bets: the trader has two possible events to choose from: the price of an underlying may either rise or fall after a specified amount of time has elapsed. On one of these events he sets a self-chosen amount. If this event actually occurs, therefore if the price is as predicted by the trader, he will make a profit. On the other hand, if the event does not happen and the price does not behave the way the trader originally assumed, the bet is lost for the bet. This simple setup makes binary options very popular, especially for newbies, as trading is quick to learn. Trading, on the other hand, is often criticized because, by definition, it is actually a bet.
Just because binary options are betting doesn’t mean it isn’t possible to trade them profitably. Most people know gambling as a game of chance, where it is not possible to make a profit in the long term. But that is not the definition of stake. Although binary options have a high degree of pleasure, they are not purely a game of chance, as the probability of winning can be influenced by targeted analysis and a good understanding of the market. Whether a trader can be successful in the long run depends on whether he is able to create binary options with a positive expectation. If the average expected profit per bet is greater than the bet, then it is a bet with positive expectation. Who makes many bets that will make long term profits.
variance problem
As we have seen, binary options trading is all about making good decisions and placing trades in a way that makes it possible for them to win.
There are many different methods available for value analysis, ranging from the relatively simple to the highly complex. But even traders who master price analysis very well and only take trades that should actually produce positive results often have high losses and can even lose their entire trading capital. Are. How is this possible? If traders opted for the more likely outcome each time, they should actually make a profit. This is where variance comes into play.
The so-called expected value is an average value. If a trader places a trade with an expected value of 58%, it has a positive return. So if the trader chooses this trade he will make an average profit. However, for the individual trade, there are still only two possible outcomes: it is won or lost. 58% mention only average. If a large number of trades are placed with this expected value, 58% of them will be won in the long run. On the other hand, it also means that 42% will be lost. The more trades that are placed, the more accurate the result is the expected price. This means that value analysis is always designed for the long term. Everything is possible for individual trading. It can take several such trades in a row to lose, which in some circumstances can put the trader’s entire deposit at risk. If, for example, 10 trades of this type are placed, it cannot be assumed that 5.8 will be won, as is expected given the expected value. Everything can be downsized. In the long run, however, when thousands of trades have been placed, the result is similar to the expected value. So if the trader completed 100,000 trades on a given day and had an average price of 58%, it can be assumed that the number of trades won would be closer to 58,000.
Price analysis possibilities are limited
To be able to analyze the trade price in detail and place such good trades, users have many different methods and tools at their disposal. Course analysis can be learned quickly, but there are many complex subtleties, with which results can be further improved and new methods are developed regularly, so even experienced traders must continue to train, as they constantly can learn something.
Many brokers provide free training or video courses where newcomers can learn course analysis.
While price analysis is undoubtedly one of the most important tools in binary options trading and very important for long-term, successful performance, it should not be underestimated. Some newbies expect to approach almost every trade with newly learned analysis skills and some advertisements for binary options even offer tips to the client. However, there are many unpredictable factors in the curriculum of the courses and they are of short duration. One can only make very inaccurate guesses, so even with an optimal analysis, the hit probability can be increased only slightly. A trader who can achieve around 55-56% of his or her trades with the help of technical analysis is already very good and can turn a profit on most brokers, provided he/she puts in the necessary risk management. But this dealer must live with more than 40% lost trades.
Without good risk management, binary options are gambling
The variance in binary options is high because they are “all or nothing” bets that either make high profits or lose the entire bet. Since a good price analysis can very vaguely predict whether a trade is won or lost, there is still a lot of luck factor for individual trades.
Because of variance, almost everything can happen in the short run. With luck, you will win a trade much higher than the probability calculator and the trader will make a huge profit. In this example we are talking about positive variance. On the other hand, there can be a negative variance and the trader loses trades significantly higher than the average expected price. Only when looking at a very high number of trades will the result match the expected price and good traders will be able to show really positive results.
The big problem with that is that many traders don’t even get into that high number of trades because negative variance hits and they lose everything. To prevent this from happening, any trader who wants to take binary options trading seriously and avoid gambling should come up with good risk management. This means that only a very small part of the total capital is traded. This prevents traders from losing too much in the event of a negative variance and thus being unable to continue trading. For losses, the amount of stake is reduced accordingly, so that the fluctuations do not affect the total capital too much. Very small bets, of course, do not result in profits growing so quickly, which requires a high degree of discipline, so as not to deviate from the planned risk management and not yet over-risk. Many really good traders block their way to success, because sooner or later there will be negative variance and capital will be lost due to high stakes.
Many brokers provide free training materials
A well-conducted, targeted value analysis is critical to long-term success. Beginners can learn many aspects of course analysis directly from their binary options broker, as they often provide free training materials. It is advised to deal with this in depth before starting the actual trading. Good knowledge increases the chances of winning. Many brokers also offer free demo accounts. Here, users can get acquainted with Play Money and thus apply and deepen newly learned strategies and analysis methods without risking trading in binary options. So there is no need for any investment to understand binary options financial bets and find out whether trading matches your own ideas.
Anyone who can get initial experience through a free demo account and now wants to trade with real money should always pay only small amounts, which he can easily do without, because of the risk of total loss. is always given. While this can be limited by proper risk management, it cannot be completely avoided even by the best of traders.
Even the best traders carry a high risk
Binary Options is considered a very modern commercial product and is very popular. Critics, however, complain about the broker’s sometimes unmanageable course designs and the high risk of loss. Despite all the analysis options have, binary options are a highly speculative trading variant, which depends to a great extent on luck, even in the short and medium term. Even experienced traders with a wealth of expertise can not only make steady profits, but often suffer huge losses. Good risk management can minimize the loss of the entire deposit, but is not completely guaranteed. Therefore, all newbies should be aware, before the first deposit, that although high profits are possible, the deposit may just be lost.
Conclusion: Binary options are financial bets whose profit potential can be influenced
The allegation that binary options are pure gambling cannot be confirmed, as there are opportunities to influence one’s chances, as evidenced by the success of some trading professionals. However, it is true that binary options are financial bets where a bet is made and a pre-determined payout is made on a positive outcome. The goal is to make only those bets that have a positive expectation. This will benefit in the long term.
However, with binary options, risk should never be neglected, as even professional traders put their capital through binary options at a great risk. Since it is a highly speculative investment with high variance, it is possible and even likely to incur high losses repeatedly. Even total loss is possible, which was already experienced by many traders. Therefore, only money should be used, losses can be accepted without restrictions and never paid through a broker’s own circumstances, even if it is animated by tempting promises.
Before registering and depositing with a binary options broker, prospective clients should read the terms and conditions carefully and check their integrity. Only a broker who trades appropriately and in accordance with applicable regulations will be able to trade binary options successfully.