Everywhere you turn online, there is this ad and that other ad enticing the readers to Binary Option Trading.
The promise is usually centered around how easy it is with sales pitch such as “work for one hour a day and make $10,000”.
But what is the potential for those who embark in this activity.
In this article, we will scrutinize the lure behind this rising hype.
Binary Option Trading: What Is It ?
Binary Option Trading consists of correctly guessing the future outcome of a scenario.
The “Binary” in the name comes from the fact that one must choose from just two outcomes: yes or no.
In financial trading, the scenario is whether the price of the underlying asset will be above of below a certain threshold (price) at a convened future date.
Such examples of scenario are:
- Gold above $1500 at 1:15 PM when the market closes ?
- Crude Oil WTI above $57 at 16:00 ?
- USD/YEN (US Dollar vs. Japanese Yen) be above $1.30 in 60 Mins ?
Multiple assets are available for trading ranging from forex pairs, indices, stocks, commodities and even crypto.
The value of the Binary Option fluctuate between a Bid and Ask price that can be quite distant apart.
As for the expiry time, it can be anything between a few seconds to a few months.
So in principle, one can understand why it appears so simple: just like flipping a coin.
Very little effort is required, the settlement time can be within an hour so really what’s not to LIKE ?
Online Binary Option Trading: How Does It Really Work?
There are two main types of Binary options.
- Cash-or-nothing Binary Options: Pays a predetermined amount of Cash in case of win (known as in-the-money)
- Asset-or-nothing Binary Options: the payout is the value of the asset
The other terms used to name these Binary Options are often: all-or-nothing Options, digital options or Fixed Return Options (FROs on the American Stock Exchange).
If the trader believes that the price of the asset will go above the suggested price, he/she buys a call option, instead, if the trader believes the price will drop below, he/she buys a put option.
In the US exchanges, the maximum payout per one option is capped to $100.
This implies that the buy price of the Binary Options is always below $100.
How close it is to $100 is proportional to the probability of being in the money.
The trader can close their position at any time before the expiration.
At the time a trader buys the Binary Option, the payout percentage is already known.
Let’s articulate this true an example.
Trader Joe thinks that Crude Oil WTI will go above $57 by whatever expiration and there buys one Binary Option Call for $50.
The payout in this scenario is: ($100 -$50) = $50 divided by the initial buy price of $50 which is 100%.
Online Binary Options Industry
Unlike the above US exchanges, online brokers do not have a dollar limit amount on Binary Option payout.
Online brokers sell Binary Options at a fixed price (example $100).
They define the payout as a percentage. The trader knows this information before placing the trade.
That number can be anywhere between 60% and 100%.
This industry has gotten the bad eye from many jurisdictions across the globe due to lack of regulations.
What Do You Need (To Do) To Get An Edge ?
Binary Options are often associated to a “guessing game” at best or Gambling at worst.
Companies involved in international transactions are prime candidates to use forex Binary Options.
For instance, a US companies selling goods to a European customer with future payments in dollars.
Such companies can protect their revenue from the EU partners by taking binary options trades on the EUR/USD pair.
Oil companies are another examples I can think of to benefit from since Oil is “indexed” on the US dollar.
The regular retail traders can take their market knowledge to find a regulated broker.
They can also use sophisticated tools for technical and fundamental analysis along with trading methodology.
However, they will always come second to the main beneficiaries: the brokerage firms they are trading against.
Let’s illustrate this with this example.
- An online Binary Options firm pays $75 for each successful $100 trade (75% payout)
- Said online Binary Options even gives back $10 on each losing $100 trade
- Assume, the trader makes 1000 trades and wins 545 of them and 455 are losses
- The Profit from the 545 winning trades is: 545 x ($75) = $40875
- The Loss from the 455 losing trades is: 455 x ($100 – $10) = 455 x ($90) = $40950
As a result, our trader must win at least 54.5% of the time to break even.
I did not include the fees for the 1000 trades which would make it even worse.
The edge in Binary Options trading always belong to the brokerage firms.
Each brokerage firm knows how much payout they can afford to give based on internal statistical data they have gathered.
How To Make Money in Binary Option Trading ?
We have learned so far that Binary Options are based on a yes or no outcome.
A correct prediction gets the trader a predefined fixed amount.
These are the two main reasons why Online Binary Options trading is gaining popularity online especially with the proliferation of social media.
We have all heard about the elusive “Binary Millionaires”.
However, a closer look actually reveal many issues due to lack of regulations and outright manipulations from unscrupulous brokerage firms.
Stories abound online of brokerage tactics such as: delaying of quotes, false pricing report (these two can be avoided with professional tools such as Investing.com App or TradingView charting Tool – We have reviews for both here).
In some cases, brokers will go as far as buying/selling the underlying asset with the goal to impact the outcome of the option should it be close enough.
We cannot fully estimate the extend of these practices for sure.
But how about not taking a chance on a rather biased “market” in favor of the very people (brokerage firms) who are organizing the said market.
For sure, there has to be better online alternatives in today’s world
What If There Was a Better Way ?
Maybe you have come to this article because you are looking to:
- Take Control of your (Financial) Life
- Create another Source of Income
- Gain Freedom from your Job (Always Known as the Rat Race)
- Create More Flexibility for you to care for Your Loved Ones
- Start an Online Business
No matter your reason, what follows next may well be the answer to your quest.
You see, you have knowledge in a particular area that you can share online and make money from it.
It could be a sport you grew up taking a part in, the career that has now left you wondering what’s next.
This company called Wealthy Affiliate could be the stepping stone for you to get what you deserve our of life.
If you know of a friend or colleague who you think may benefit from this, please do share with them.
16 thoughts on “Binary Option Trading: Myth or Reality ?”
Becoming a Stock Trader or an Affiliate Marketer? Affiliate marketing has no risk. It is only your time you invest. And promotion tasks. Sure, you may invest in promotion and after the campaign calculate your ROI?
But, I think it is much more predictable than in the stock market. I don’t have a clue about Stock Trading because I did never do it more learned about it. Affiliate marketing is more known and simpler for me. I guess, for many other people as well.
However, Affiliate marketing is much easier and faster to learn and master than stock trading. on the contrary, successful traders can make a fortune by trading. An affiliate marketer needs to sell a lot to become a Super Affiliate Marketer!
It is your choice,
Thanks for the info,
As you can see , we reached the same conclusion as you at the end of our discussion on Binary Option Trading.
Thank you for you input.
Thanks for the in depth look at binary option trading. It certainly has some elements that basically look like gambling. It might be a viable option for some portfolios, but looks much too risky to me. As you mention, this is definitely something that leaves you looking for a better way! Thanks for sharing the link for finding a more straightfoward source of income.
Glad to read from you Aly,
Yeah, the opportunity we provided at the end of the article has quite a better potential than Binary Option Trading.
Thank you for this information about Binary Options Trading. I have often seen this promoted on social media and it all sounds a bit complicated and also too good to be true when you hear of people making a lot of money doing only this. Though I agree that people who know what they are doing and can afford to lose money are better suited for this way of making money, but is it really worth it for the beginner with not a lot of money?
I really liked the way you explained the different types binary option trading, especially Online Binary Options, which I see people promoting the most. I am a little bit skeptical of anything where the people promoting an opportunity based on a chance of Yes or No can manipulate the outcome. Sounds a bit risky to me, even more so than just regular stock market investment. However that company you mentioned, Wealthy Affiliate, sounds promising. How much would that cost?
Thanks for stopping by.
Wealthy Affiliate is a platform than one can operate initially for free and still make money doing that.
I believe for the people who are serious about building an online business, higher level of training and tolls are provided for just $49/month.
Hope this helps.
Hi, I was wondering if this is a newbie friendly thing to be checking out,? If I am new to investing, then do you advise to simply stick to buy and hold index funds instead?
I am also using “Wealth Simple” for my investing, as well as going to a financial advisor, simply because I am following the advice of Warren Buffet and Jack Bogle, to simply buy and hold repeatedly over time.
Also I was wondering if Binary option is a good idea if it so unpredictable? If I am betting my money on something I prefer to know what my odds are first.
Thanks for covering this and nice work with this article.
We are not financial advisors and thus cannot make recommendation on your investing.
We are merely provide tutorial on how to go about learning to trade options.
Based on our article on binary option trading, this is not something newbie should jump in
without the proper knowledge.
You have further enlightened me! Now I know what binary option trading is. I want nothing to do with it. It sounds like something Bill Gates could toy with, but not somebody who is serious about gaining income. As a newcomer to the world of crypto investments, I realize that sometimes you really are making what could be a loose guess on a potentially high-end loss. Still, you probably won’t lose everything unless you take your eyes off the updates. Thank you for continuously sharing valuable information.
I am so glad you find value in this article.
Our aim is to delight you the reader with useful
Thank you for validating our goal.
It is a nice article which give a detailed description on binary option trading. I have never trade option and feel confused on many of your description. I understand the basic principle, if you bet the stock up, it is call and if you bet the stock down, it is put. But how do you know the stock is up or down, you seems right that it is purely speculative. One question: is it possible to bet for two directions, such 75 % on call and 25% on put, if my speculation is that the stock will go up.
It seem that option trade is a very stressful job, since I know the market swings minutes, hours, and daily. There is a lot motion. How could your emotion during the option trade?
It is kind of you sharing this valuable knowledge with us.
Yes, one can play both directions in stocks options trading.
In binary options, they challenge is how much money to allocate on each side
Since you may end up with a wash. But your fees will
Trading can be stressful but it does NOT need to.
There is an article on Personality type that gives pointers
On how to leave emotions out of trading. That leads to better results.
Thanks for stopping by today.
I have tried both. Binary trading is like betting in a casino. Absolutely on control except the tools you use gives you the illusion you know what you are doing. It is as random as it gets and the opposite movement from your position at the very last minute makes one feel there’s manipulation by the platform. It is similar to an online casino. I have given up on that.
I am an Affiliate Marketer and still doing it. It is a business just like selling products except you only work on the promotion and get paid for making the sale. All the fulfillment is done by the vendor of the product. Therefore you don’t carry any rental, inventory or logistics costs. Therefore, you are investing in a marketing business or service. It is digital, so you can do this anywhere and anytime. A simple business model but like any business, you need to makes some small investment to get started and work on it.
Thank you for sharing your experience with binary
Option with us.
We really appreciate that.
I never trust any of those advertisements advocating that you can make quick money using binary option trading. There’s too much-guessing game and too risky in my opinion. Having said that, I’ve been meddling with the idea of long term stock investment like ETFs. I found that they are more secure and easier to get into with a low minimum account.
We appreciate your sharing your sharing your trading experience.