Is Trading Binary Options Legitimate?
Now, without a doubt the growth in binary options trading over the last couple of years has been phenomenal. The beauty behind trading binary options is that they are easy to understand, defined/limited risk, defined payouts, non-leveraged and very low barrier of entry for traders. Are you wondering is trading binary options legitimate?
Sounds good right? So what’s the problem and is binary options worth it? The knocks on trading binary options are:
- It’s seen as gambling and not real trading.
- he brokers have the advantage.
- A lot of brokers are not regulated and lack credibility.
- It’s marketed as a way to get rich quick.
Of course, some of these concerns are legit while others can be dismissed. Let’s further investigate these claims.
They say that 90 percent of retail FX traders lose 90 percent of their money in 90 days who trade on margin account. In addition, most day traders lose money even with regulated binary options brokers. When trading binary options you are making a bet on whether a currency pair will be above a certain level or below a certain level. One thing is for sure, binary options are not an investment vehicle. Most short term traders focus on ‘technical analysis’, which is no different from successful binary options traders. If you’re trading binary options based on an indicator or pattern that has a “proven statistical edge” then it’s no different from day trading stocks, futures or currencies.
How about the brokers? It’s no secret that odds are stacked against the trader, anytime you risk more than you can potentially make the probability works against you. Depending on what you’re trading and who the broker is, the payout could range from 50% to 81%. Is this a problem? Again, if you’re trading and feel that you’ve got a statistical edge it shouldn’t be an issue. When trading vanilla options, there are transaction costs, the broker charges a commission, not only that but you have to overcome what you lose from the bid/ask spread. The broker offers a service and want to be compensated for that. It’s true that the majority binary brokers don’t hedge and are on the other side of your trade. However, the payout and the risk is pre-determined.
As you can see, the first two claims can be debated. Moving on…
In some countries, trading binary options is not allowed because the brokers are not regulated. There is a major debate on whether they are legal or not. Some view it as gambling, while others view it as trading. In some countries, like the USA, some FX broker platforms are considered illegal and they won’t accept US based customers.
Broker selection is one of the most important factors in your success as a binary options trader. Over the last couple years, some customers have had complaints with binary options brokers. What are these issues? Refusal to credit accounts or reimburse funds and identity theft. Obviously, this is very scary stuff. It’s important that you do a background check of your broker. The beauty is you can do a lot of research on brokers by doing a simple internet search, reading blogs, forums and watching YouTube. Unfortunately, a couple of bad apples are ruining it for reputable brokers. Things you should look for in a broker are reviews from customers or a reputable review source that trades through the broker platforms and grades them. You should be asking the right questions:
- How are your funds protected?
- How long has the firm been in business?
- Who are the owners of the brokerage?
The less detail you have on the firm, the more skeptical you should be. If you deposit funds, where are the funds allocated? Is the bank reputable? Have customers had issues getting funds back?
Many brokers are making efforts to become regulated. The ones who offer the most security are the ones you should gravitate towards.
Winning and losing money trading binary options is very easy to do. Trading is very difficult, again, most successful binary options trader’s trade based on a statistical edge, with that said, binary strategies must be back tested and adjusted as market conditions change. Anyone bragging about how easy binary options trading is, should not be taken seriously. It’s very difficult to be consistently profitable. It requires hard work, research and a little bit of luck. Stay away from systems or brokers that promise easy money.
In conclusion, trading Forex binary options is not a scam. However, you have to do your homework on who to select as a binary options broker. There are scam businesses out there, but that doesn’t mean that the whole binary options industry is a scam. Find out if it’s legal for the broker to accept accounts from residents of your country.
Also, it doesn’t hurt to use a little common-sense; trading can be difficult, just because it’s easy to put on a trade doesn’t mean you’ll be successful. So do your homework first so that trades work for you and not the broker!
