The Binary Options Debacle

What are Binary Options?

The binary options websites became popular over the past few years and more of these sites appear every day. These sites promote themselves with slogans like,  “earn up to 75 per cent every hour” and “81 per cent profit in one hour or less, trade all major markets”. These options are known as:

  • all-or-nothing options
  • digital options, or
  • Fixed Return Options (FROs), on stocks, commodities, indexes and foreign exchange

In effect, you “bet” on any stocks that are publicly traded.

Binary Options: The Basic Premise

Options may vary according to site options, but the basic premise is:

You put down an amount of money at a specific time. Let us say $100 at 5:30p.m. Your option is to bet on whether the specific stock you bet on (ABC) will climb or fall within the next five minutes (5:35 p.m.). If you are wrong, you get $15 for your effort back. If you are right, your return is around $70.

This resembles online gambling, but you are just betting on stocks instead of horses or sport results. Keep in mind that the site has to make a profit, so your chances of “winning” will be limited.

Binary Options – an Investment?

Many of the binary options trading sites describe binary options as an investment. Buyers are called investors and you, as investor, get the option to buy an asset at a fixed price. The Website is called the Seller. Your option has to be held for a specific amount of time and it may be as little as 5 minutes, but you can not sell before your time is up.

The Binary Options Addiction

These websites state that they offer you controlled risk, because you can not lose more than a specific amount. If you guess right, you can make some gains – but you will have to guess right at least more than 50% of the time. You trade from the comfort of your couch with your credit card.

Although risk is limited per transaction, add up a day’s trading and losses. You can pretty much get your card in the red if you do not watch yourself.

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Ref: http://www.forbes.com/sites/investor/2010/07/27/dont-gamble-on-binary-options/#389d4fb11908

 

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