Forex Binary Options… the latest trend in the financial industry – a completely new way to make money from currency movements.
Binary options are not to be mistaken for normal options contracts, which are a completely different thing. We’re specifically talking about binaries only.
As a Forex trader, you probably visit many Forex websites and therefore see a lot of mentions about binary options, especially in the form of advertisements or those annoying ‘get rich quick with binary options’ emails.
They are promoted as being: easy, low risk, and give huge ROI in a small amount of time – as quick as 60 seconds!
Every corner you turn, there is something screaming in your face “BINARY OPTIONS”, almost to the point where you’re being brain-washed with subliminal messages just to get you to create an account and start trading ASAP.
When you actually pull back the curtain, you will discover that it’s mostly clever marketing and a play on words to get you to spend money.
In this article I am going tell you why binary options are not a good opportunity, and in fact this trading method is nearly guaranteed to waste your money.
Its A Shame – Binary Contracts Come in interesting Formats
There are a few different types of formats you can use to setup a binary options contract. They are actually a very clever and a very interesting way to speculate on the market – I even like some of the formats available.
With binary options, time is basically your trade ‘exit’ point. You can have contracts that last as short as 60 seconds, right up to ones that last for a day.
You ‘win’ when your contract expires ‘in the money’, implying the condition on your contact is true when the expiry time ticks over.
Here’s the part I like…
The conditions you can ‘opt in’ for are very innovative; you could come up with some cool strategies with these kind of configurations at your disposal.
- Put (bearish) & Calls (bullish): Basically if price is above or below a specific price level at the time of contract expiry
- Touch Trade: If price touches a specific price level before the contract expires
- Boundary: Price is between two levels (inside a range) at the contact expiry time
These are a very different approach in contrast to the classic SPOT Forex trading that we’re all used to. This is about as awesome as binary contracts get, it’s all downhill from here.
There are many ‘red flag’ issues with binary options that you might not be aware of. You really have put the system under the microscope and even listen to some of the horror stories of traders who have been put through the binary options meat grinder.
Checkpoint
The Returns are Terrible
If you’re a regular reader of the site – you will know that I promote trading systems and money management that use positive geared risk reward ratios. The core logic behind this is positioning yourself inside a statistical advantage – you can lose more trades than you win and still make money.
I beat on a lot of scalping, high frequency trading systems mainly because they use negative geared risk reward money management. Your returns are less than what you risked – forcing the need for you to be right more times than you’re wrong
Here comes the boom…
ALL Forex Binary Options are setup with negative risk reward ratios.
That’s right, when you close a contract ‘in the money’, you win less than you risked. If you open a $100 binary contract, the best you will probably ever earn is $85. That’s a 1:0.85 risk reward ratio … it sucks!
Some binary options brokers may advertise they do a 1:1 ratio, so if you a win a $100 binary, you get your $100 back plus $100 in winnings. But the kicker is, they apply an admin charge for setting up the deal, which they will take from your earnings – forcing the setup back into the negative risk reward danger zone.
The harsh reality here is you are statistically going to lose your money with binary options.
Checkpoint
It’s not Really trading – It’s Classic Gambling
When we trade the SPOT market, we actually are physically getting involved by owning and converting global currencies. As tiny as our trades may be in the larger scheme of the overall Forex market – our trades will still have some sort of effect on the currency price.
We are actually a market participant and our actions are one small variable that determines where price will move.
Binary option contracts are really just pieces of paper, metaphorically speaking. You don’t actually purchase any of the asset, it’s just a ‘gentlemens agreement’ between you and your broker.
You’re playing blackjack with your broker, and they are the one dealing the cards.
Binary options have payout ratios, just like betting on the horses – but at least the horses regularly payout many times more than the money you put down.
If you really want to get technical and look up the dictionary definition of gambling, you will find Forex trading is technically classified as gambling…
To stake or risk money, or anything of value, on the outcome of something involving chance
So if classic Forex investing and trading is categorized as gambling, Forex binary options definitely get no pass.
Don’t let these binary options businesses represent themselves as a smart man’s investment opportunity! Don’t kid yourself – the writing is on the wall, these are gambling sites, pure and simple.
Checkpoint
Most Binary Brokers Are Notoriously Untrustworthy
Many companies are taking advantage of this ‘cash grab’ before regulators come in to crash the party.
It’s a brilliant business model for them because the odds of earning money are highly stacked in their favor – just like the casino. The house always wins.
Spot Forex trading can be compared to poker, where players compete with one another. The ‘house’ or casino takes a small commission from the kitty as a fee for hosting the event. This is just like the spread brokers charge, it’s their fee for connecting your trade to another participant.
Forex brokers (well the good ones) and the Casino hosting a poker event will encourage more trading, or try to extend the poker game for as long as possible. The longer the players or traders remains active, the more commission the broker/casino earns.
Binary options can be compared to blackjack. Like the casino, the binary options broker wants you to lose. The objective for them is to take all of your capital. We all know blackjack is very lucrative for casinos, and binary options are very lucrative for these brokers.
The binary options market is a highly unregulated one. As a result, there are a ton of bad brokers out there, but it can be hard to spot them out if you don’t know what you’re looking for. They will list all their regulatory licenses and even have a nice flashy looking website to appear as legit as possible.
When you look deeper and check out their license, you find most are actually regulated by some small island off the coast of Africa – It’s called the ‘Republic of Mauritius’. Check it out for yourself.
The whole point of having a regulating body is so you know a trusted government has your back if something goes wrong. Just like the fall of Aplari UK – the FCA is making sure everyone gets their funds back.
I am not sure about you, but I don’t trust the Republic of Mauritius to help me out, or have much power to do so if these binary options brokers decide to screw me over. It’s happening already if you check out other peoples experiences…
I didn’t look too hard just to find these frustrated reviews, and these were actually from some of the most well known options brokers. The other sad thing is, there were only 1-2 star reviews, no one had anything positive to say.
It looks like no one had a pleasant experience even with the most popular binary sites.
Binary Option companies will make it really really easy for you to deposit money into their system, but they make it as difficult, and as inconvenient as possible for their clients to withdraw money back out, sometimes refusing withdraw requests all together.
Who is going to save you, an African island, the Cyprus government? If you are going to trade binary options, you better do some extensive research and make sure the broker is regulated by someone like the FCA, ASIC, or NFA.
Checkpoint
Binary Brokers Have a Few More Tricks Up Their Sleeve to Steal Your Money
I’ve made a few contacts in the Forex industry who have been around a long time and are in high positions. My contacts pass information onto me in confidence and want to remain anonymous, but it doesn’t take long to confirm these tip offs with the customer reviews out there.
If you’re a broker that isn’t being monitored by a serious regulator, you can pretty much do whatever you want and get away with it. These guys know that, they are in the business ultimately to get your money and keep it, one way or another.
Here are a few black hat techniques these guys use to shake you out.
Slowing the Clocks
Just like most Forex traders – binary options traders are attracted to the adrenaline fulled action of the very speedy expiry contacts, flocking to contracts that turn over in as fast as 60 seconds.
This is a very volatile and high risk way to trade in any manner, but just in case a trader was doing well with it, a broker can ‘slow down’ the clock just to give the contract a better chance to expire ‘out of money’.
They will basically speed up or slow down the ‘master clock’ on their feed which ever way suits them. You try getting your money back with the argument ‘your clock was not right’.
Manipulate Price Feeds
If a regulated spot Forex broker was busted doing this, they would be hit with huge fines, or even be closed down – but no one is watching these binary guys to make sure they are doing the right thing, and who is going to punish them if they are manipulating the feed?
If a contract is about to expire in the money, only just by a few points – the broker can manipulate the feed so price appears to close out of money. They try to do this subtlety, but the people are smarter than these brokers think, we get suspicious quickly and started doing checks.
Unsurprisingly, traders discovered they were getting screwed over.
Custom Feeds ‘Optimized’ For You
Because the binary broker is the one who actually writes the contracts – it is going to be in their best interest to write contacts that are most likely to work out in their favor.
There is actually some complex math which many refer to as ‘the Greeks’, referencing the Greek math symbols used in the equations. But keeping on point here – the broker knows how to set contracts up that work for them statistically.
Lets say you sign up and are doing well. Your account will be flagged and be given special treatment – you’re losing the company money something needs to be done.
The system will start to give you worse price feeds and contracts with less payouts. It makes it harder and harder for you to win.
The more you win the more you’re restricted.
Once you lose a lot of money the broker will then start to give you back the normal price feeds and higher payout contracts to play psychological games with you and bait you into spending more money.
Checkpoint
Don’t Be Fooled By The Clever Marketing That Baits You In
These guys will word things in a way which presses all the right buttons with you and removes the feeling of risk. You can’t be sucked into these clever sales pitches.
Most of them are just throwing around buzz words like: ‘high percentage payouts’, ‘low risk’, ‘zero spreads’. It’s all just a play on words to get your mind off the real dangers.
Forex binary options is promoted very heavily on the internet because the binary brokers offer good commission for anyone who refers clients/victims to them. So most of the people promoting it are just site owners looking to make a quick buck off your misfortune.
I’ve had my say, I’ve done the right thing and warned others.
If you’re going to get involved with binary options be extremely picky with who you choose as your broker. Check their license numbers with the regulator – don’t assume they are licensed just because they display a license number, I just found one binary broker who was displaying a fake license number and was not regulated at all.
If you really want to be serious about trading, it’s best just to stick with the SPOT market. It’s regulated better, your money is pretty safe and there is much better opportunity to earn high return on your trade risk.
SPOT Forex brokers are just much more trustworthy, especially if they are regulated with someone like the FCA. If you’re looking for a good Forex broker, check out my brokers spread deal.
Keep away from the binary sharks!
Good luck on the charts.
Ashley Wright
I lost an incredible amount of Funds to the fake Binary option Brokers, It all started from a phone call and after some persuasion I decided to invest, after months of constant investment I decided to ask for a payout this was the beginning of my turmoil, to my dismay I was still asked to invest more.
Brittany Snow
I have been scammed and scammed and scammed again. I invested with four binary companies and lost all of my investments totaling 290,000GBP. Then I was contacted by someone offering help as a company who specializes in binary recovery. I was scammed by them again. By the end of it all, I had lost all of my savings and I was in serious debt. I was desperate for help and that made me vulnerable to recovery scams. My husband is not around anymore and I have an 8-year-old son with learning difficulties. The pressure of being a single, working mother with a child who needs so much additional attention and support became overwhelming for me. I also felt too traumatized to trust anyone else and I was very afraid, but I had no choice other than to trust another broker. They have been incredibly helpful and supportive and also very understanding about all of my fear and concerns they helped recover all of my funds back within a week using unethical means I feel quite, I really hope that others do not have to go through what I did, and I wish that I had realized before things were so bad that I was being scammed. I hope my story might help others to not be fooled the way that I was.
Maya
I had a bad trading experience. I was ripped off by a bogus broker recently it was difficult to get a withdrawal after many failed attempts. I had to hire a recovery solution firm to get my funds back. mayabanin01atgmaildotcom
David
This is funny Dale because i trade binary options with your strategy on iqoption and on highlow the broker interface and quotes are accurate they don’t spike up and down like most fake brokers out there i get what you mean but i make a descent amount of money trading with binary about $306k+ everyweek they are people who make millions the secret to true binary success is mastery of your strategy and having a solid risk and money management binary is all in or out so for traders you should aim to make more profitable trades than losing ones so make sure to thoroughly practice and master your strategy and develop a solid risk and money management system also you should know if it’s scam check for regulation and withdrawal execution etc ask good question and do your research but Dale it’s not gambling
Ricardo Del Risco
I am currently trading BinOp with NADEX and this comes from their website:
Nadex is designated by the Commodity Futures Trading Commission as a Designated Contract Market and Derivatives Clearing Organization.
Now, I’m pretty sure that like most brokers, they play their game to stack the odds more in their favor. I do agree with probably slowing or speeding up the clock or manipulating the feeds. Nadex says that they do not take a side, only charge a commission of $1, but most contracts I can see that they have 75 contract bid and 75 contracts ask, or sometimes is 200. As soon as you place 1 contract bid(call) or ask(put), then you see it increasing by 1.
To me that tells me that the 75 or the 200 are not from different traders, which could mean that it comes from them.
Anyways, there is something that I totally disagree with this article and it is the R:R ratio.
The contracts are based on a $0 or $100 payout, MINUS commission AND the cost of you buying the call or selling the put.
Example: If you think that EURUSD will finish higher than say, 1.1200 by X time today and spot price or feed price is sitting at say, 1.1175, you might find a contract having a bid at 30 and offer at 40, for example. If you are SO convinced that EU will close above 1.1200 by that specified time and you buy at $40, your risk is $40, THAT IS IT!!! Your potential reward is $60, of course minus the $2 commission ($1 to buy $1 at settlement if profitable). So that is a 1:1.5 Risk/Reward, not the optimum 1/.85 R/R mentioned in the article.
What kills you with BinOptions is the time feature which is inherent to ANY OPTIONS contract.
NADEX offers end of day and weekly options that you can trade to spread out the risk better.
They also offer Spreads which is a very nice way to trade commodities, indices and forex, but be careful as some of the spreads on the spreads (pardon the repetition) are quite wide and it will take a good move in the expected direction to make any decent $.
I’m not recommending BinOptions Trading, nor NADEX, but wanted to share my experience, which by the way has not been a profitable one, even though I traded demo first and was positive the first few days after I opened a live account.
The problem has been in my lack of 1) discipline and 2) a clearly defined strategy.
My recommendations are: 1) start with $500 or less if you are going to go live and 2) TRADE LONGER TIMEFRAMES. What kills you is the 1 hour or 2 hours expiration BULL CRAP.
Just my 2 cents. Would like to get feedback.
Replying to: Ricardo Del Risco
Dale WoodsAuthor
Thanks for letting us know about this Ricardo. Nadex seem like they are regulated in the US so that is a plus. If they do offer at least a better ROI on binary options than most broker’s negative geared system, that is also a nice feature. However, it is still only slightly over 1:1 risk reward, which is OK, but not the best – you’re still going to need a high win rate with binary options. I still prefer FOREX, as the reward potential there is much greater.
Mac Wilder
I would like to ask you how is the best way to trade the futures market.
Replying to: Mac Wilder
Dale WoodsAuthor
I am not sure, I don’t get involved with futures. I don’t see any reason too when you’ve got the Forex market available to you.
Hussein Hamed
BO is a gambling machine been scammed with 2000 pounds … I hate when they keep calling you to deposit a money b’ cos there is big trading event like .later on on I discovers that they can manipulate with price to lose
Replying to: Hussein Hamed
Dale WoodsAuthor
Sorry mate. Yes, that is highly illegal for them to pressure you to deposit money in regulated environments.
Gayan
100% agree sir. its not trading. its gambling.
Tj
I tried a binary option trading platform BinaryUno and I was winning until I realised they were trading my account and after two explicit instructions to stop trading and leave the account alone they just ignored me and exploded it leaving me with zero dollars. Blatant ignoring custumor instructions. Bunch of thieves as far as I’m concerned become it was obvious in the end that they just wanted to ransack my account. No recourse. They are based in Seychelles and not regulated. Do not ever trade binary options in my opinion unless you can guarantee yourself you have 100% control of your account and the broker can’t T get there greasy slimy paws on on your bucks.
Replying to: Tj
Dale WoodsAuthor
Sometimes in their terms and conditions, you can find a clause they will state that when the account gets over a certain profit – they can trade the account for you. This is obviously hugely unethical and would be criminal under properly regulated rules.
matt casela
Hi guyz …. i have bad experience too like binary option … sometimes when i try OP on forex at reversal graphic … sometimes i found that the graphic not really real forex, like a gambling… when i OP buy the graph go bearish and at time when i OP sell the graph go bullish … its zigzag graph …. i dont understand but i try to OP buy and sell at same time on same pair and timeframe is 15M … but the graph freeze when i try it 1 hour … but after i close one OP the graph go bad way and im loss, i loss every i OP with graph movement … its ridiculous.
jerra
Hi, thanks for the article. I agree that this system is gambling and no asset is ever owned. But I do think knowledge of trading currency pairs and understanding of markets can create great opportunities on participating in the “binary option” game where good returns could be made. Whether one trades basis fundamentals or uses indicators I think can easily be applied to this binary option method. If you simply confirm a yes or no basis on a winded guess like throwing darts at a board blindfolded then yeah it’s gambling in that sense and expect no returns, but applying your usual forex trading strategy then I think it is a worthwhile system to use in conjunction with trading.
George
Hello Forexguy,
Your statements are quite inaccurate; and this is coming from both a professional FX and BO trader.
You cannot compare a 0.8:1 RR with a RR in FX which at times is 2:1, 3:1. There is no such thing as 600% ROI in FX; what utter garbage. Unless you got lucky and left some position open over night and milked a 1,500 pip move. Your ROI is measured on your total equity; not % allocation per trade in FX. In BO it is measured on a per trade basis; so pound for pound you can generate much higher return for capital invested in BO. To make a $15 into 30 you need two winning trades in BO. In FX it would take weeks if not months, if you follow standard Kelly risk management, to double your account from $15 to 30. Even if some freak uses 500:1 or some jumbo leverage account, you’ll probably blow your account getting to $30. FX you can lose much less but you also make much less. Its a simple fact that the best of best FX traders make 10-30% per month. The best BO traders are generating way more.
Gambling by definition is where you are leaving the outcome to pure luck. BO is a derivative on various asset classes which can be researched technically or macroeconomically and indeed directional bets can be made, thereby increasing your probability of win above the required 59%. It is complete nonsense to categorize them as classic gambling.
Just because in BO you dont own the underlying does not mean its gambling.
People like you with sensationalist crap is what is wrong with BO. Paint the facts as they are, stop trying to push your agenda. Yes BO has a lot of scam, but stop painting the entire asset with 1 brush.
george
Replying to: George
Dale WoodsAuthor
“You cannot compare a 0.8:1 RR with a RR in FX which at times is 2:1, 3:1.” – > Yes you can, it’s simple ROI math, which can be used in any kind of business. “There is no such thing as 600% ROI in FX; what utter garbage.” -> Yes there is, just check out my videos on the site. “Your ROI is measured on your total equity; not % allocation per trade in FX.” -> No mate, it’s not. It’s measured on the risk you put down on the trade. “Just because in BO you don’t own the underlying does not mean its gambling.” -> LOL, ok George. “People like you with sensationalist crap is what is wrong with BO. Paint the facts as they are, stop trying to push your agenda. Yes BO has a lot of scam, but stop painting the entire asset with 1 brush.” -> People like me? I am not pushing any agenda here, I am just warning people away from binary options, because as you admitted, the industry is filled with scammers. I am painting this with my truth brush George, your statements in this comment CLEARLY show you have no idea about risk management, or the financial markets in general. Good luck with your binary options trading George, you’re going to need it!
Rico
Thanks for this really enlightening article, Dale. I haven’t traded binaries, but as you say, they’re plugged everywhere and i’ve wanted to investigate. Your article has done all the leg work ; ) Now i can steer clear of them and not wonder what they’re about.
Willie Engelbrecht
Thank you,this is very informative. Is there a way to claim money back ,that was lost with binary options?
Replying to: Willie Engelbrecht
TheForexGuyAuthor
No, if you lose a binary trade it is the same as losing a Forex trade. Expect with binary contracts, all the money goes in the brokers pocket… very lucrative for them.
Phil
I don’t care what anyone says, all trading is gambling. I take it the forex guy picked some real good brokers for his article. Binary trading is a good way of making money quickly, but you have to have a strategy & that strategy is totally different from the forex strategies. Yes the risk/reward ratio isn’t as appealing as forex, but with practice & money management, you will make money. The Swiss decision to stop buying euros hurt the forex trader, didn’t affect binary traders. Fors & againsts on both sides of the fence.
The binary trading platform is very important, you have to have one that you can type in your own amounts, not the preset amounts that some binary brokers use. You are guaranteed to lose with preset amounts. You can compare that to fighting with MT4 or using a platform like Marketscope to place & adjust your trades.
Forex or binary, don’t touch it with a barge pole unless it’s regulated by a trusted body. As someone else said, would you trust Mauritius to get your money back.
Either type of trading is crystal ball gazing.. It’s a 2 horse race , call it what you will.. Keep it clean keep it fun
Replying to: Phil
TheForexGuyAuthor
Hi Phil, thanks for your feedback.
As I stated in the article I do concur that Forex is by dictionary terms gambling. As is buying or selling property – anything involving the risk of loss is basically gambling.
I am sure there are some binary strategies that would make money, but because of the handicapped risk/reward they provide – it is going to be much harder to sustain profits on a longer term basis. Also yes, there are probably regulated binary brokers out there, but unfortunately the market is flooded with unregulated brokers that offer the world, and deliver nothing but trouble for the trader.
Binary traders were not effected so much by the CHF rally simply because binary options is just a bet between you and your broker, even if you bet on the chf, you don’t actually own it.
Ben D'limi
there are so many currency pairs that you could trade , why Binary? never traded them , I came across on you tube , and it looks too good to be trusted.it’s Gambling in my opinion.
thanks for the warning Dale.
Ripple
There is a guy from ETX Capital ( forgot his name) an old guy who apparently is a veteran trader and hosts training webinars on behalf of ETX on Binary options trading using the ETX Capital platform. He reckons he makes money with Binary options, but when asked questions he is abrupt and impatient. I opened a demo account to check it out for myself and even when you consider news events and pivot points to me just like this guy teaches for me it just felt like gambling as price can go in any direction within a short space of time. You are still just basically guessing when you place the trade.
Replying to: Ripple
TheForexGuyAuthor
Most of the time binary traders are reaching for 60 second contracts or something ridiculous like that. I haven’t seen anyone bother trading daily binaries. There are some traders who say your can hedge your Forex trades with binary contracts, but there is still a chance your binary contract fails, and you get stopped out in your Forex trade. There is just no free lunch here.
Jerry
I have read on the internet that 95% of traders loose money. And there are only about 5% that are winning. Is that 95% all binary options traders? If forex trading is better, why isn’t everyone winning? Why do forex traders spend thousands of dollars on training and webinars, but so many are still losing money? If Forex trading is superior to binary options, then all forex traders should be rich!! But we all know that is not the case. If you are being told that binary options trading is bad, and you should be trading Forex, that’s just another broker scam to get you to loose your money in a bigger way, since you have to invest more to trade Forex than binary options. All brokers make money if you loose. It doesn’t matter if it’s, Forex, binary options, stocks, commodities, indices etc. You still have the odds stacked against you! The only way you can win at trading is to learn how to think for yourself. Learn how to read “Price Action!”
Replying to: Jerry
TheForexGuyAuthor
Thanks Jerry, it’s true a high % of Forex traders failure, mainly because of psychological reasons. The point of this article it to show you that it is much harder to turn consistant profit with binary options because your reward ratio is always less than one, where as in Forex you can triple, even get a 600% ROI on some trades. This will bring down the overall win rate needed to turn a profit. Also the fact that Forex brokers are regulated strictly whereas binary brokers are mostly free to do what they want and no one will be there to protect you, the trader, when your money goes missing.
Replying to: Jerry
Zanzolo
Totally Agree with You Jerry.
Nesbert
Thank you for the insight ,
Rui P.
I think there is actually many scams on BinOp world and otherwise they are very poorly regulated.
But even if BinOp are not a scam they are hugely difficult for newbies. It’s one of the worst places to begin with this thing called «trading». The only advantage I can see is the money risk: you can learn making mistakes while you control the money amount of your stakes.
But, I repeat, it’s very hard for a newbie to correctly address the expiry times int the almost always short time frames on disposal in most BinOp brokers.
vinny
I got caught up in Binary Options scam..put your money in you may never get it back
Leonel Ruiz
I had bad experience in Binary options, huge Scam.
Alm
Binary options are not gambling if you’re in a serious broker. Of course if you have a gambling approach you will lose your money. This applies to classic trading. The R:R is negative, making binary trading more difficult than classic trading as one must have a winning ratio greater than 58% to only break-even. Ignorants that think they will quickly make money with binary without doing deep research will always burn themselves.
Replying to: Alm
TheForexGuyAuthor
If it’s not gambling, then what is it? You’re not actually buying any assets – you’re making a bet with your broker about a certain outcome. No different to betting with a broker who co-ordinates horse racing bets. Not saying you can’t make money with a strategy, but it’s not ‘trading’ because you’re not actually trading anything.
Replying to: Alm
Zanzolo
Totally Agree with you Alm, Binary Options is not gambling instead a person without the knowledge to trade Binary Options will certainly be gambling.