What Are Binary Options? A Full Review on Binary Options Trading Explained.

Posted by: Ben on June 14, 2016 Under: Binary Options Trading |

Are you interested in Binary Options? Well, if you are then you have probably already run the gauntlet of information that is out there on what works; what does not, and what brokers to use.

I’m into what works online, as you already know from reading my other reviews, and since I also happen to write about the subject, I have a list of topics that I just know people are interested it – Binary options being one of them.

Binary options seems to be one of those subjects that although not particularly interesting to most, and are very interesting to a few.

The problem being, is what to believe.

Binary Options, and Dubious Marketing

Let’s start with the marketing of Binary products.  The marketing can be very ‘good’ with these type of products…

One of the most common examples of bad advertising that I see are products for trading binary options. I have had the somewhat dubious pleasure of running into this kind of thing in my capacity writing these reviews, they are a very divisive, full of grey areas, and are usually created to make the reader think that the writer knows more than they actually do.

There is one thing that you will almost always find when looking at a binary options product, and that is they are usually always highly persuasive, and highly polished in their sales material. There is a lot of money to be made in binary options, or so I read,  but from my research, this money is mostly lining the pockets of the marketers and brokers rather than you, the customer.

And because this is the case, the sales pitches are usually very ‘high production’ or they talk in hushed whispers of ‘bank breaking systems’, or ‘secrets’, which is usually nonsense to make you think they have something ‘unknown’.

The reality is, they are trying to ‘push your buttons’ 🙂

This is all designed to sound impressive to you as a potential customer. The fact is, that when in the advertising, you see somebody walking around a mansion, getting into a Ferrari, working with “real” people on a video, it is very easy to get sucked into the hype.

They are usually selling an unattainable lifestyle to those who are usually the most desperate, or eager to learn.

Just to point out though, I have absolutely no doubts at all that there are products that work in the Binary Options market, it’s just that it is also a market with so much rubbish written, and promoted; which does nothing whatsoever to promote what is geuine.

What are Binary Options?

Purely in tangible investment terms, a binary option isn’t really anything. What you are doing is purchasing a hypothetical option on stock, a commodity or a currency with a view to selling it immediately, or later for a set profit (I know that this sounds really complicated, but I will explain it later; it’s a pretty easy concept to understand once you have an good example).

Binary options are sold as being an ideal trading platform for people who have never traded before, because there are only two outcomes, you win or you lose. Whilst the same could also be said of any form of trading, Forex for example, the difference lies in the fact that binary options have a set profit.

This ultimately depends on which binary options broker you are using as different ones will set different prices, however this is usually between 30% and 80% of how much you originally “invest”.

How do Binary Options work?

When you “invest” in binary options you first choose what you want to trade on. This can be one of a number of different things, however the most common are a currency pair or a commodity. If you are trading against a currency pair you are choosing the value of one against the other to increase or decrease, with a commodity you are choosing whether the value will go up or down.

Once you have decided what you want to trade against you will be shown a current market value. You then have the option to “call” or “put” on the market price over a certain amount of time. If you call it, you are saying that you think that the market value will increase, if you put then you are saying that you think that the market value will decrease over your chosen timescale.

It is worth pointing out that when you say that the market value will alter, this is usually to 4 decimal places. What this means is that if gold starts at 1000.8000 USD/oz, you would be looking at it moving to .8005, the kind of market movements which you can’t really predict.

What this represents is a binding agreement between you and the binary options broker that they will pay out at their rate of pay if you are correct and if not, you lose your initial stake. As you may notice at this point, the description of a binary option seems to have more in common with a bet than a real trade.

This is something that a lot of people have picked up on and is a big part of the reason that many traders want nothing to do with binary options, namely that the broker (or the house) has an edge.

This isn’t the only problem with binary options however. I have already explained the difficulty in trying to predict market movements in such minute detail, but what if somebody knows a market exceptionally well? There still remains the problem of guessing a timescale. A lot of binary brokers will restrict the times that you can trade over to at most 24 hours meaning that even if you “trade” longer term, you are locked into the value at the end which is still wildly unpredictable.

There are also allegations made through ‘The Times of Israel’. I will explain about this later, and with a reference point.

What is a Binary Broker?

At this point I have mentioned binary brokers, and it is time to address the elephant in the room of what they actually are, and what they offer.. I will also be very selective with my words as they tend to vehemently deny any wrong doing or anything that questions their business.

As I implied above, a binary broker is the person with whom you make the agreement of a trade. When you make a deposit with a binary broker they take ownership of your money (which leads many of them to use or suggest a variation of the term “bank”).

When you place a trade through them, that money is then handled very much like with an online bookmaker. If you win then the original stake and your winnings are deposited into your trading account, if you lose then they remain deducted from your trading account.

There are generally two types of accounts that you can have with binary brokers.

The first of these is a demo account, and they will typically give you a thousand dollars or so to trial the concept of binary options. This sounds like a great opportunity to play about with binary options to see if they are for you.

Unfortunately, you will usually be asked to make a small deposit in order to claim your demo account and by small deposit, I actually mean a minimum of $250 as industry standard (although you will be tempted to add more).

Many binary brokers will also offer incentives to deposit much more than the minimum saying that they will multiply your starting balance.

These often come with ludicrous small print however and will often mean gambling your initial investment many hundreds of times over before you are entitled to withdraw it or any winnings (matched bettors will know all about this rule…).

This is the kind of thing you will see as an incentive:

(Looks enticing right? But…….Always read the small print….)

One of the issues with binary brokers is that they present themselves as being entirely legitimate. Where they differ from (for example) a Forex broker is that whilst Forex brokers actually serve a purpose in that they provide traders with a platform to trade, a binary broker is entirely self-sufficient and operates outside of any wider framework.

Many brokers will also offer you support to help you to become a “better trader”. Much of this seems to involve you being encouraged to simply invest more money. This is money that as I have already explored, is very difficult to withdraw.

Are Binary Options Legal?

Binary options are very much legal although there are probably a lot of people who think that they shouldn’t be. Any misconception about the legality of binary options seem to be down to the somewhat unethical approach that they take and the fact that they aren’t regulated.

Their legality however, doesn’t mean that binary options are necessarily a safe investment.

Are Binary Options Safe?

Whether or not binary options are safe depends entirely what you mean. With the vast majority of brokers you can ultimately get your funds out, however this isn’t always easy.

Many binary brokers will require you to provide copies of things like a driver’s license, recent utility bill, a copy of the card you deposited the money with and that is only to get things started.

In fact, in a massively interesting article on the Times of Israel (again, I will link to at the bottom of this article) an insider of binary brokers says companies go out of their way to make it difficult to make a withdrawal and that “pretty much the company just refuses to give it [the contents of the account] up”.

What this means is that whilst you should ultimately get your money back, there will usually be a long uphill struggle to actively achieve this.

Who Regulates Binary Options?

When it comes to binary options and in many respects binary brokers and their regulation, there exists a massive grey area.

Fundamentally, the whole thing is unregulated with the only attempt coming from Cyprus (which along with Malta is where many binary options companies are registered). Unfortunately, their legislation only really applies to brokers that are registered in that country.

Here in the UK, binary brokers aren’t regulated by the Financial Conduct Authority (FCA) but by the Gambling Commission http://www.gamblingcommission.gov.uk/Home.aspx. It is worth pointing out however that this only applies if a binary broker has any remote gambling equipment located in the Britain.

What this essentially means is that unless they operate within the UK (which most binary brokers don’t), then you are on your own, unfortunately.

In the US the trading of binary options is seemingly rather more frowned upon.

In fact, the Commodity Futures Trading Commission and the Securities and Exchange Commission charged one of the largest binary brokers a few years ago for alleged violations of US financial regulations. This ended in the broker having to pay back $11 million to people that had allegedly been illegally signed up.

Can I really Make Money with Binary Options?     

The short answer on this is probably not, as it seems difficult to find a broker, and advice that you can really trust.

The fact is that when it comes down to “trading” on binary options there are only two outcomes and the structure (even when you win) inherently favours the binary broker. Whilst I don’t doubt that there have been some people who have made money with binary options I simply can’t see there being that many from the sheer number of complaints about the concept online.

What about products that say I can make money through their software or trading bot?

This is very much an article in and of itself, and is something that I eluded to at the start. In fact, these kind of products are exactly why I decided to write this. Honestly, I have taken to avoiding reviewing them because the outcome is always the same, namely that they are all rather naff.

Most binary options related products are aimed at those who are desperate or struggling a lot financially, and this is usually obvious in their approach. Many of them are marketed as bots or software that is guaranteed to profit.

They are also usually offered for free and claim some very incredible stories. Some of the examples that I have looked at before now include people claiming to be ex professional traders, IT geniuses and even in some cases, highly suggestive that they are privy to insider information.

Obviously these aren’t true and instead are the fervent dreams of unscrupulous internet marketers whose sole ambition is to rob you of your hard earned money.

This begs the question of how they are able to do this if they are literally giving away their products to you. I mentioned earlier that there is usually a minimum deposit and this is key to the many money making products on offer.

The marketer behind the service will most likely get a commission for anybody that they get to sign up with a chosen broker. This is why if you look at a lot of binary options trading products they will talk at length about their chosen broker.

Here is an example of a review website making Binary Broker commissions:

(Read such commission based Binary Reviews with a huge pinch of salt!)

I have seen reasons that vary from a given broker being the only one the marketer trusts (although these usually change from one week to the next) to that broker being the only one that will let the software connect directly to it. All of this is of course rubbish and any chosen broker is usually because they are paying the highest commission for your cash.

The products that you then get for free will proceed to place (or get you to place for it) multiple different binary options trades with little regard for their success.

This is because as a marketer receiving commission, the more your customers are paying into a broker (and I can assure you that you will be prompted to pay in more once your initial deposit is spent) the more they can make off you.

So are Binary Options a scam?

I think that it is very libellous to call binary options a scam and whilst many websites are happy to throw that term around, I think it is best to see them in a starker light.

Binary options are really just a very bad way of gambling. They are not a scam in and of themselves. By educating yourself on them, you can see that rationally, binary options are no more a scam than a lottery (based purely on the odds of winning).

That having been said there is a lot of very shady practice involved at a commercial level.

When I say this I refer to both the products that are marketed and the brokers themselves. This is a market that is a market that is rife with pitfalls and has really been designed to suck cash from your pockets and make it very difficult to get it back again.

You can take what you will from that, but I would say before you do anything related to binary options you check full terms and conditions, because somewhere you will likely end up on the back foot.

Conclusion on Binary Options

There has been a lot of demonization of binary options recently and honestly, I can see why.

In their present form they are an unregulated mess and a law unto themselves. They exist solely to make money and whilst this could very easily be said for any industry, very few are designed to milk people in quite the same way.

I said above that binary options aren’t in their own rights a scam and I do agree with that statement (although I don’t think that they’re a good investment), but this is a rabbit hole that goes very deep.

I feel that it is necessary to point out that I have been reviewing products for some time now. I thought I had a pretty good handle on binary options but I am frankly shocked at how deep the deception goes.

It would seem that a lot of these European companies are actually operated by a number of Israeli citizens, and as a nation Israel is actively trying to ban the practice.

The tactics used by brokers and their employees are seemingly deplorable and where whistle blowers have come forward, there is a worrying ring of truth to what they are saying. The fact is that binary options are not an investment. You aren’t buying anything.

You are gambling on an outcome that according to one source interviewed, the brokers themselves insist on having control over, just on the chance that they are going to lose out.

They also make binary options seem like a glamorous or exciting way of making money. The websites advertise with buzzwords that are made to make you feel pumped up. Things like “turbo option fast trades” (lose your money quicker) or “the thrill of trading” (watching to see if you’re going to lose money).

Binary options products exist to make one person money and one person only, the brokers. If you are looking to lose money fast in a thrill of almosts, then by all means choose a binary options broker (because there are enough of them) and make a deposit.

If you want to make a solid investment or learn genuine trading skills then I would suggest looking more at Forex markets. Whilst these aren’t perfect either, they are damn close to fair than binary options.

To get an idea of how unfair binary options trading is, you simply have to read the disclaimers that brokers include on their websites. Almost all of these including in some way shape or form the statement that binary options are high risk.

They also talk at length about how you should seek advice from a licensed financial advisor (who will almost certainly tell you to leave well alone).

So are binary options worthwhile?

Absolutely not. Unless a UK company can come up with a way to diffuse what is a very messy industry, then I would not at this stage trading in Binary Options.

I simply cannot think of a worse way to spend your money. They are rigged in the favour of the industry, the infrastructure seems to only serve to take money from people and the worst part? Even when you get burned (because eventually you will), you are left to deal with these companies on your own as there is very little in the way of regulation.

This is something that a lot of countries seem to be fighting against however, especially as there are more binary options companies cropping up (and as mentioned, the US have already scored a pretty impressive victory).

Personally I feel that with proper regulation this flash in a pan will slowly disappear as it becomes less profitable. Right here and now though, I cannot recommend enough staying well away from binary options.

Authors note: I mentioned a number of times a certain article from The Times of Israel. For those who would like to read this (I should point out that it is rather heavy going) the links is below.

http://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-vast-amoral-binary-options-scam-exposed/

Summary

• Binary options have more in common with betting than actual investment, despite how it is presented.
• Whilst binary options aren’t necessarily a scam in their own rights, the industry that supplies the service is very questionable.
• This doesn’t change the fact that binary options are massively high risk.
• More people lose money than make money with binary options.