The #1 Reason Why I Will Never Trade Forex Binary Options

In this post, I’m going to tell you the number 1 reason why I will never trade forex binary options.

So I’m guessing you may be interested in forex binary options trading, that’s why you are reading this or maybe the title of this post caught your attention and you’ve landed here.

I’m sure you have seen such binary options trading advertisements like these:

  • “make 85% in 5 minutes”
  • “earn up to 75 per cent every hour”
  • and “81 per cent profit in one hour or less, trade all major markets”

Forex Binary Options Trading

Looks good…and tempting, doesn’t it? Imagine making 85% in 5 minutes!!!

But hang on!  Lets dig a bit deeper to find out what really is going on with these binary options trading…

But first, if you don’t know binary options, here’s a crash course…

What Are Forex Binary Options?

What are binary options?  Binary options are financial options where you get paid a fixed amount for being right or nothing at all if you are wrong.

There are two main types of binary options:

  1. cash or nothing binary option
  2. asset or nothing binary option

Cash or Nothing Binary Option

In the cash or nothing binary option, you get paid a fixed amount of money if the option expires in the money, if not, you get nothing.

Asset or nothing Binary Option

In the asset or noting, you get paid the value of underlying security.

Why Binary Options Trading Targets People That Don’t Really Understand Risk:Reward

Binary options trading has become a kind of pseudo investing sub-culture.

If you go to most of the binary options broker websites, here’s the kind of information you will find:

  • they will describe binary options as “an exciting new type of investment”—note the interesting use of the word “investment”.
  • “When a binary option is purchased on our platform, a contract is created that gives the buyer (known here as the investor) the right to buy an underlying asset at a fixed price, within a specified time frame with us, the seller,” the website will explain. The option must be held until maturity (even if that is five minutes away); unlike regular options it cannot be sold before then.
  • these binary options websites promote themselves as offering controlled risk (you can’t lose more than a specified amount), low cost, big gains if you guess right, and ease of use—you can trade from home whenever markets are open and set up an account with a credit card.

Why Has Forex Binary Options Grown So Much In Just A Few Short Years?

Well, I got a few theories:

  • its almost like betting on a horse. This means even papa and mama sitting on the couch watching television can guess which direction the EURSUD will go and take a bet WITHOUT the need for proper technical analysis. Just guess up or down and make money…isn’t that they binary options get advertised to the masses?
  • and therefore it becomes addictive because it is so easy.

Is Forex Binary Option Trading Regulated?

This is the most scariest…binary option trading is mostly unregulated.

This should automatically ring alarm bells if you are keen on trading binary options because if something like binary options trading is unregulated, what can that mean? Seriously, think?

Would such words come into your mind?

  • fraud?
  • scam?
  • dodgy?
  • questionable?

Well, if you are thinking those words, you are right!

Wikepedia says:

Though binary options sometimes trade on regulated exchanges, they are generally unregulated, trading on the internet, and prone to fraud.The U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have issued a joint warning to American investors regarding unregulated binary options.and have forced a major operator, Banc de Binary, to cease operations in the US and pay back all customer losses. Many binary option “brokers” have been exposed as questionable operations. With such binary option brokers, there is no real brokerage; the customer is betting against the broker, who is acting as a bucket shop. Manipulation of price data to cause customers to lose is common. Withdrawals are regularly stalled or refused by such operations.

I will summarize what Wikepedia says:

  • binary options brokers are generally unregulated which means prone to fraud
  • binary options brokers are not real brokers, the customer is betting against the broker therefore these guys can manipulate price data to cause you to loose!
  • binary options brokers are have been exposed to questionable operations
  • if you make profits, there’s a chance the your withdrawal request can be stalled or refused.

This is serious stuff here, folks…

How To Trade Forex Binary Options?

Trading binary options is a really straight forward process:

  1. First step is to open a trading account with a binary options broker
  2. second step is to fund your account with some money.
  3. third step, trade and using your binary options trading strategy.

With a binary option you simply choose whether an asset will be higher or lower than the current price (or strike price) at some future time or date.

This simple form of trading has become quite popular over the last several years.

With this simplicity come some drawbacks though. Here are some of the disadvantages of trading these financial products.

Forex Binary Options Trading Platforms Are Horrendous

One thing the really sucks in binary options trading …and I mean BIG TIME SUCK is this: the trading platforms offered by binary options brokers look like some charts drawn by a year 4 student.

If you were to compare them to a forex trading platform like the Metatrader4 and rank them out of 10 and 10 being the best, you’d give 10 for mt4 trading platform and you’d give 1 for a binary option trading platform.

Don’t Gamble On Forex Binary Options

Gordon Pape on Forbes wrote a very interesting article titled Don’t Gamble On Binary Options.

Here’s what he had to say about Binary Options Trading:

There are lots of ways to lose your money in this world but here’s one I hadn’t encountered before: binary option Web sites. They have become popular over the past few years with new ones appearing all the time: anyoption.com, bulloption.com, spotoption.com, binaryoption.com, etc. etc.

The sites appeal to the same type of people who play poker online. But they somehow have an aura of being more respectable because they represent themselves as offering a form of investing. Don’t kid yourself. These are gambling sites, pure and simple. It’s probably just a matter of time before regulators move in on them.

Until that happens, they seem to be doing great business. A Google search for binary option Web sites produced 870,000 hits with promotions like “earn up to 75 per cent every hour” and “81 per cent profit in one hour or less, trade all major markets”. You can buy these options, which are also known as all-or-nothing options, digital options, or Fixed Return Options (FROs), on stocks, commodities, indexes, foreign exchange, and other derivatives.

In fact, you can place a bet (which is what it really amounts to) on just about anything that is publicly traded, depending on which Web site you use (some offer a wider range of choices than others). Some sites provide free guides to binary option trading to get you started.

If you are thinking of trading binary options, this article should be enough to stop you doing it.

 

My #1 Reason Why I Will Never Trade Forex Binary Options

But here’s my main issue with trading binary options: risk:reward is not in your favor when you trade binary options!

Read that again…”RISK:REWARD is Not In Your Favor When Your Trade Binary Options.”

What about the “make 85% in 5 minutes?”

Irrelevant! Simple as that.

Let me take you back to what a normal forex trade looks like:

  • you can take a trade with a 50 pips stop loss and make a 150 pips profit
  • so your risk to reward is 1:3 which simply means that the profit you earn is 3 times more than what you risked in that trade.

In binary options trading, this is non-existent. You risk a lot to make less!

So the odds are tipped in whose favor?  The binary options broker.

You see, trading binary options is really simple…you decide if EURUSD is going up or down in the next hour, minutes etc and if you are right you make money.

But the problem I have is the payout?

What about the payout? Remember the “make 85% in 5 minutes?”

Well, that 85% is FIXED. You can’t earn more.

So if you bet $100, and if you win, you make 85% of that $100 bet which will be $85. That’s what I mean by saying that “you are risking a lot more to make less!”

Let me give you another example:

  • if you risk $100 and if your prediction is right, you get $80 payout, that is based on  an 80% payout (and you get your initial $100 back).
  • if your prediction is wrong, you loose $100.

Binary options brokers payout anywhere from 70-80% payouts for a basic binary options contract.

So what does this tell you?

Well, it is a negative-sum game, isn’t it?

Because the no matter how many wins you make, the results of the losses are ALWAYS GOING TO BE LARGER than your wins and in the end, if you don’t have a very high winning rate binary options trading strategy, you will loose big time…simple as that!

Think back again about the risk:reward ratio…You risk $100 to make $80 and If you loose, you loose $100!

This means you got to really have a high percentage of wins to be in positive territory. Otherwise you won’t make it.

Why?

The losses are always greater than your profits…that’s why!

 

Summary

I’ll be blunt…forget binary options trading because the risk:reward is NOT IN YOUR FAVOR.

What is the point of risking $100 to make $80? It just doesn’t add up! Because you are risking more to earn less!

That kind of market does not have odds stack up in your favor.

And here are some very important but scary points raised in this article:

  • binary options brokers are generally unregulated which means prone to fraud
  • binary options brokers are not real brokers, the customer is betting against the broker therefore these guys can manipulate price data to cause you to loose!
  • binary options brokers are have been exposed to questionable operations
  • if you make profits, there’s a chance the your withdrawal request can be stalled or refused.

I’d rather take a shot at risking $100 to make $300 profit in normal retail forex trading market than make a $80 fixed profit with forex binary options.

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