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What are binary options?

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asked Jan 1, 2016 in Investing by anonymous
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Binary Options are stock market options in which the payoff can take only two possible outcomes: win or lose. Hence the term 'binary.'

 

It can also be understood as stock market investment on a macro-scale. While regular stock market trading is buying and selling stocks or shares over a period of days, weeks, months or even years, binary option trading lasts between 60 seconds and 30 minutes.

 

As with regular stock trading, one needs to predict how the market is going to react. But unlike regular trading, these prediction need to be established literally within seconds. 

 

Upsides Of Binary Option Trading

 

The biggest upside is the high payout. If guessed right and a stock rises or falls as predicted within the established time-frame, the payoff may be 60% to 80% of the investment -- as opposed to  an average 7% over several days or months in regular trading. Theoretically one can make thousands of dollars in just a few minutes.

 

Downsides Of Binary Option Trading

 

While the payoff is high, so is the loss. You can win up to 80% but you can also loose 80%. This makes it the highest win/lose platform in stocks.

 

The biggest downside is the lack of predictability. While in regular trading one can invest based on market movements, the behavior of a company, announcements, new product launches, etc that give insight on how a stock may move, binary is win-or-lose based on pure gut-feeling.

 

Since there is no way to predict how a stock is going to move within minutes or seconds, winning in binary option is pure luck. While binary option trading platforms advertise and sell themselves as serious 'stock investment' firms and 'stock traders', there really is nothing that separates them from any other gambling establishment, except for their web design.

 

Binary Option Trading is betting on the individual spikes as seen here in this chart. How such a spike may or may not behave is however entirely unpredictable.

 

While there are some who claim to have found or developed a system, it all boils down to luck. Binary option trading is therefore considered gambling and not stock trading. But instead of horses, dogs, cars or boxers, one bets on stocks.

 

In fact, professional gamblers in general stay away from binary options, as it is less predictable than horses or a boxer. At least one can analyze a horse's or boxers condition, past wins/losses, the arena, weather conditions, etc. Even poker is more predictable.

 

In the all-or-nothing world of binary option trading there is nothing that can be analyzed, because no matter how good a stock is, it moves up and down randomly during each trading day.

 

Conclusion

 

As stock trading goes, binary options is a poor excuse -- a gambling platform in the sheep's clothing of a stock trading firm.

 

As gambling goes, binary options is the least enjoyable gambling system, equal to flipping a coin.

answered Jan 2, 2016 by AlecCorday (5,810 points)

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