What's the catch with Binary Options?

[DitterPD]

Seeing all the talk about "don't trade with Binary Options", can somebody please explain like I'm five, what's the catch with them?

 

[Michael "Grimweird" Tan]

Basically, when you "buy" a BO, you set the conditions at purchase. Typically you define whether the price of an equity, currency, commodity or whatever will have risen or fallen within a time frame which you specify. You also define how much you want to invest and what percentage of return you want to receive (based on what the broker is willing to offer or course). Let's say you decide to invest $100 that the price of the USD/JPY currency pair will go up within, say, at the end of the next hour. The broker may decide to offer you a nett profit of 75% if your prediction is correct.

Once all this has been defined and the deal made, there's usually no way out. You usually cannot, for example, decide to back out of the deal or change your mind later on. So you have to wait until 1pm, staring at the chart as it goes up and down and hoping you're right. If you're right and USD/JPY price is higher than it was at 12pm (doesn't matter by how much) when you bought it, you get your $100 back as well as a tidy $75 profit. If you're wrong you lose the $100. Simple.

Some brokers allow you to close the option before expiry. Using our example above; lets say at 12pm you bought an option that USD/JPY will have gone up at precisely 1pm. By 12.45pm you see every indication that this is not going to happen, some brokers MAY allow you to sell the option, typically at a loss to you in this situation (or a lesser profit than the defined 75% if the situation were reversed). This serves as an "ejection seat" should things not go according to plan or you decide that the lesser gain is preferable to the possibility of a total loss. This "bug out" option also has an expiry point. In our example it may perhaps be available for only 50 mins of the hour. So you will have to decide by 12.50pm. Beyond that the option is no longer available and you'd be in the lap of fate for the last 10 mins.

That's BO in a nutshell.

The "catch" is that the industry is full... and I mean FULL of scammers. This is because it's still very new and relatively unregulated, and although popular because of it's simplicity and fast profitability, it's extremely hazardous because of it's anonymous "online" nature and the very, very many shady, disreputable brokers in it. Horror stories include being unable to make withdrawals, chart and price tampering, extreme lag and or chart lockouts just before and during option expiry, many hidden rules and requirements and ridiculously long delays when you want to take your profits. These are just those off the top of my mind. Trust me, there are many others.

Many would also argue that BO is "unfair" or that the trader has the odds stacked against him. I'm not sure if I agree with that. I mean if you are a thinking adult, you would know what you're getting yourself into. I can't accept that a mature trader who invests in BO and legitimately loses money due to poor planning or lack of knowledge and understanding and NOT scamming and then blames the system, saying that it's "unfair". You read the terms of the agreement. You agreed to them. You can't blame anyone for the choices you make yourself. If it's "unfair" yet you participated in it, and lost your money, then you only have your own greed, ignorance and stupidity to blame.

Personally I think anyone who wants to invest in BO can do so if they want to. But much in the same way smokers risk cancer if they want. Looking at the industry as a whole, it's my personal opinion that it's a way for the vast majority of traders to lose money FAST. Only the most cautious, experienced and knowledgeable traders can prosper in BO. However, it's absolutely CRUCIAL to make sure that the broker he/she decides to work with is a legitimate one. There DO seem to be some out there who are honest. I dare not however vouch for any of them until I take the time and necessary steps to ensure they are legit.

It's true that Binary Options are simple and has potential for good profits, but it's also true that it's also hazardous and risky in the extreme.

You have been warned.

 

[AsstModerator]

This is what the CFTC and SEC had to say about binary options...

https://www.forexpeacearmy.com/fore...raud-advisory-alert-about-binary-options.html

 

[GOR FX]

Seeing all the talk about "don't trade with Binary Options", can somebody please explain like I'm five, what's the catch with them?

Lack of financial regulation among the so called 'brokers'. When they go burst, there is no chance of you ever getting your cash back.
You are betting against the broker, and your loss is their profit and vice versa. What happens if you win too much? Will they pay you and yet they know that they can easily get away with it scot free? Your guess is as good as mine.

GOR

 

[Brian Thomas]

It is more like lottery: guess where the price will be tomorrow at this very moment. As for me it is difficult if don't say almost impossible. You don't know if there will be any pullback at this time tomorrow or anything else. You can't close the unprof trade. And if guess, they give 60% to 80% of the money you played for.

 

[DitterPD]

Basically, when you "buy" a BO, you set the conditions at purchase. Typically you define whether the price of an equity, currency, commodity or whatever will have risen or fallen within a time frame which you specify. You also define how much you want to invest and what percentage of return you want to receive (based on what the broker is willing to offer or course). Let's say you decide to invest $100 that the price of the USD/JPY currency pair will go up within, say, at the end of the next hour. The broker may decide to offer you a nett profit of 75% if your prediction is correct.

Once all this has been defined and the deal made, there's usually no way out. You usually cannot, for example, decide to back out of the deal or change your mind later on. So you have to wait until 1pm, staring at the chart as it goes up and down and hoping you're right. If you're right and USD/JPY price is higher than it was at 12pm (doesn't matter by how much) when you bought it, you get your $100 back as well as a tidy $75 profit. If you're wrong you lose the $100. Simple.

Some brokers allow you to close the option before expiry. Using our example above; lets say at 12pm you bought an option that USD/JPY will have gone up at precisely 1pm. By 12.45pm you see every indication that this is not going to happen, some brokers MAY allow you to sell the option, typically at a loss to you in this situation (or a lesser profit than the defined 75% if the situation were reversed). This serves as an "ejection seat" should things not go according to plan or you decide that the lesser gain is preferable to the possibility of a total loss. This "bug out" option also has an expiry point. In our example it may perhaps be available for only 50 mins of the hour. So you will have to decide by 12.50pm. Beyond that the option is no longer available and you'd be in the lap of fate for the last 10 mins.

That's BO in a nutshell.

The "catch" is that the industry is full... and I mean FULL of scammers. This is because it's still very new and relatively unregulated, and although popular because of it's simplicity and fast profitability, it's extremely hazardous because of it's anonymous "online" nature and the very, very many shady, disreputable brokers in it. Horror stories include being unable to make withdrawals, chart and price tampering, extreme lag and or chart lockouts just before and during option expiry, many hidden rules and requirements and ridiculously long delays when you want to take your profits. These are just those off the top of my mind. Trust me, there are many others.

Many would also argue that BO is "unfair" or that the trader has the odds stacked against him. I'm not sure if I agree with that. I mean if you are a thinking adult, you would know what you're getting yourself into. I can't accept that a mature trader who invests in BO and legitimately loses money due to poor planning or lack of knowledge and understanding and NOT scamming and then blames the system, saying that it's "unfair". You read the terms of the agreement. You agreed to them. You can't blame anyone for the choices you make yourself. If it's "unfair" yet you participated in it, and lost your money, then you only have your own greed, ignorance and stupidity to blame.

Personally I think anyone who wants to invest in BO can do so if they want to. But much in the same way smokers risk cancer if they want. Looking at the industry as a whole, it's my personal opinion that it's a way for the vast majority of traders to lose money FAST. Only the most cautious, experienced and knowledgeable traders can prosper in BO. However, it's absolutely CRUCIAL to make sure that the broker he/she decides to work with is a legitimate one. There DO seem to be some out there who are honest. I dare not however vouch for any of them until I take the time and necessary steps to ensure they are legit.

It's true that Binary Options are simple and has potential for good profits, but it's also true that it's also hazardous and risky in the extreme.

You have been warned.

Wow, thank you for the comprehensive and detailed answer.

Although I would like to add that I have raised similar discussion on the other forum and there was an answer that one analytic calculated the odds, looked at statistic (I don't remember if he was an employee at such company or not) and come up with % that you are better off playing roulette than trading binary options.

Anyway thanks for the input!

 

[Michael "Grimweird" Tan]

Wow, thank you for the comprehensive and detailed answer.

Although I would like to add that I have raised similar discussion on the other forum and there was an answer that one analytic calculated odds, looked at statistic (I don't remember if he was an employee at such company or not) and come up with % that you are better of playing roulette than trading binary options.

Anyway thanks for the input!

Don't mention it dude...

I vaguely remember the odds being something like 56% in favour of the broker. Meaning that you only had a 44% chance of actually being "in the money" as they call it. This all assumes that the broker is actually going to allow you to withdraw your "winnings". Take it from someone who's been burned before... Avoid BO.

If you REALLY want to try it. Please make sure you deal with a legit broker (should one actually exist) and only risk small amounts on your deposits and trades.

Best of luck to you man,
Mike.

 

[tim61468]

I had actualy tried BO after getting an email from a Norbert German Banker. The website was more like some gambling site than a true forex broker. I tried it for a while and when I reached a break even point and tried to cash out they wouldnt let me. I had to get my credit card company involved.

 

[AsstModerator]

Many binary websites are owned by the same companies that own online casinos. The FPA has received advertising requests from agencies that represent both binary options and online casino sites.

 

[Pheonix]

from the many helpful replies I've seen here Brian Thomas's explanation was the best. no need to go into microscopic details. what a beautiful short explanation about binary options