Many of you who have done some research on the subject of binary options will have come across a piece that Forbes ran recently advising readers to not invest their money in binary options. Contrary to the high standard usually maintained by the Forbes editors this piece (titled Don’t Gamble on Binary Options), was poorly researched and gave a fundamentally skewed account of what this new trading vehicle is all about. To this end we have decided to address the comments made in the piece point by point so as to provide readers with a more balanced view.
To begin with the first point the article makes is that binary trading attracts the same kind of people who gamble on online poker sites, that somehow binary options brokers have managed to cloak themselves in an air of respectability, but that at root binary options are just another form of gambling. Anyone who has ever traded will tell you that bad traders are indeed gamblers. Educated traders however, traders who spend every waking moment researching the assets they trade and keeping abreast of all the factors that affect their value, are certainly NOT gamblers. Furthermore there is a fundamental difference between gambling and trading that should always be borne in mind. The outcome of a dice roll has absolutely nothing to do with all the previous rolls of that dice. In trading the price action of an asset is intimately connected with its historical price action. This means that attempting to forecast a random walk is an exercise in futility, and using the historical movements of an asset’s price in combination with the wider geopolitical events currently affecting it, are both statistically significant methods of being able to forecast with some degree of accuracy what is likely to happen next. And with binary trading being so geared to trading on events and not requiring the trader to beat a pip spread, manage stop-losses or play with leverage, it is the simplest and most surgically precise way to get in and out at the right time.
The second issue we take with the Forbes piece is that the writer does not appear to have done his own research. For the first half of the article he relies on pure unfounded conjecture and the second he just copies and pastes the email that alerted him to the binary options “scam”, into the body of his article.
Now on to the email itself, which is actually penned by an individual who refers to himself as a professional poker player, and is engaged in trying to convince his father not to gamble on binary options. While his grasp of binary payout structures is within the realms of possibility, depending on the broker in question (which he does not mention), he is wildly wrong when he assumes that only seasoned professionals can have any sort of advantage over the odds. Binary options have become so popular recently because inexperienced traders can quickly become proficient at trading them. The growth of the industry testifies to this fact far more than it does to brokerages using aggressive sales tactics. To put it simply if average traders weren’t seeing results they wouldn’t carry on trading.
Also the only argument the writer of the piece seems to have against the trading of binary options is that they could probably end up being quite addictive, which is a pretty weak argument. The article’s tone is one of exposing a new scam to its readers and the only argument the writer ends up putting forward is that people could possibly get hooked on trading. Preposterous in itself but there’s more.
The secondary argument is that no one, no matter how plugged in to the markets they are, can possibly get it right all the time. Which, aside from being self-evident, is not an argument that binary brokers, however aggressive, tend to make. Nobody going into a trading scenario believes that they can possibly get it right all of the time. If they do they will swiftly be brought crashing back down to earth.
Now as for the “house” having a slight advantage due to the payout structure, which the writer states as being around a 54% success rate being needed for a trader to break even. This is significantly less that online Forex due to the fact that there are no spreads in binary options, and the precalculated payout structures (again unlike online Forex) are upfront and leave no possible room for miscommunication between parties.
Finally the writer is also erroneous in his claims that binary brokers are operating in a completely unregulated environment. This may have been true several years ago but with the first binary options license having been awarded late in 2012 and a slew of other companies rushing to also engage with the regulatory procedure by the time you read this there is a good chance that many other binary brokers will be operating in fully licensed environments.
Binary options are of course receiving the same sort of negative press from some commentators that online Forex did when the technology advanced to a point that online trading became feasible for the mass market. But the most interesting part of this story is that Forbes actually runs advertisements for online binary options brokerages, which is an enormous contradiction given the tone of the article (see this article image), which you can read here: