Binary options are by many considered gambling because there is a 50/50 chance of winning. However, as binary options are based on the stock market there is a ton of information and a plethora of tools available to traders who want a technical advantage and increase their winning odds.
In addition, the stock market reacts to various news, economic releases, government policies, and other information which enables clever traders to have even greater advantage. Fundamental analysis is a very popular approach to trading.
However, in this article I want to make a case not for technical and fundamental analysis but for something quite completely opposite, a gamblers’ approach to binary options. So if you’re a gambler that plays the roulette, poker, or other game where the odds of winning are against you might be the perfect customer to a binary options broker.
Why? Because gamblers keep coming back and this fact is also the foundation of the entire industry. The more you play the greater chances are you will be at a loss. The continuation of playing is a necessary factor which is never taken for granted by the casinos or binary brokers.
An amazing return for a trader who is managing an investment portfolio in a respectable investment firm would be 16% annual profit. Even 12% is considered excellent and most individual investors would jump at the opportunity if these profits were ever guaranteed. They usually aren’t. Of course there are managers out there who can sometimes reach 300% of profit but to repeat this kind of success every year would be almost impossible.
Let’s examine briefly why even 12% every year is a good profit for a trader. There was this huge Ponzi scheme operated by one of the most respected broker on Wall Street, Bernard Madoff, whose infamous funds promised about 11% return annually and there was a queue of investors with plenty of money to offer him. Any trader who trades the stock exchange markets regularly will say that there are good days and there are bad days and that is the nature of beast.
So considering that 12% is a very good annual profit for a trader it might be logical for someone who is a gambler to trade a lump sum of money on a single trade which generates about 12%. In Forex this will be a considerable market move that could last a day or maybe even a week. If you were to choose binary options your risk would be higher but your reward would be much quicker and also much higher, 75% or more.
Of course trading all or most of your capital in a single trade goes against all sound money management rules. One of the cardinal rules of trading is to invest no more than 2% of your investment capital. Investing 50% into a single trade is seen as really bad money management, or downright irresponsible.
Personally I think your trading approach will largely depend on your circumstances in life and there are people out there who prefer to risk it all in one or two trades. Some do it for the rush, and some do it because of the necessity but binary brokers offer trades of $10,000 for a reason.
If you have $10,000 and you need more money quickly you could theoretically put a trade on a 1 minute expiry where you correctly predict a price movement of say EUR/USD and gain 75% of your invested amount, $17,500, making your $7,500 richer in one minute. The possibility is simply mind-blowing but on the other hand if you lose the trade you would lose all your money, so no $7,500 and no $10,000.
If you invest a lump sum of money in a single Forex trade you may reach 12%, which we’ve proven to be a good annual profit, but if the price action moves against you there is a simple way to secure your capital and limit your loss to say $500 by placing stop losses. In this regard Forex is simply safer than binary options.
Now if you go to a casino and put all your money on red in the game of a roulette and really wish hard that the metal ball stops on red, you’d be gambling without insight other than hope. Do not take this type of approach to trading, or even to a roulette in a casino. Be a player that goes into a casino establishment and first stands by the roulette table and observes what’s going on. Counts the history of spin results and calculates the probability before placing any bets because that’s the only way to win with odds.
Likewise, a trader facing the enormity of the markets can sharpen his trading tools and master the knowledge that is necessary to increase accuracy of his/her market prediction. And as suggested earlier, sometimes one trade a year is all you really need to succeed in trading.