Overview
Trading Rules and Procedures
In the first two decades of the 21st century the internet became Ground Zero for binary options scams and binary options fraud.
The “binary” in “binary options” reflects its use in mathematics and computer science, in which only two possibilities exist. Binary options likewise can yield only two possibilities − up or down. When you purchase a binary option, therefore, you are betting one of two ways − either that its value will rise or fall by a fixed amount at the expiry time − the pre-determined point at which trading is closed and settled. If the option’s value rises at the expiry time, you earn money. If it falls, you lose it.
Originally, expiry times were very short, but this has now evolved and the trend today is to offer investors a much broader range of possibilities.
It is crucial to note that at no point do investors in binary options own any the assets involved in a particular trade. They are simply predicting the direction in which the asset will move in the market at the expiry time. The value of the asset may rise or fall and the gain or loss depends solely on a guess.
The Advantages
- Binary options are a simple way to take advantage of price fluctuations in the global market
- Their lure is that it’s easy
- You pick the stock or commodity and the size of your investment
- Trading can be done any day, at any time and at any place you find it convenient − at home, at work or even over a smartphone
- And if you win, it’s quick money
The Disadvantages
- Brokers fees − if you win, brokers will keep up to 30%
- If you lose, brokers get the difference between the sum they keep on a losing trade and the amount they pay out on a winning trade
- Binary options are short-term trades, which is always risky since it’s nearly impossible to beat the market 100% of the time
- Losses are huge – and the investor can easily lose all of the principal
- And unlike the stock exchange, you don’t purchase tangible assets, so there’s nothing to sell off when your predictions are incorrect
The Risks
In some countries, binary options are traded on regulated exchanges, but generally they are termed risky around the world because they are mostly unregulated by government agencies. Moreover, since it is impossible to predict with any certainty if a certain option will close higher lower at an arbitrary point in the future, the binary options structure resembles gambling more than legitimate trading. Indeed, in Britain, binary options platforms are defined as a form of gambling. Legitimate brokerages offering such services that are based in the United Kingdom, therefore, require gambling licenses.
Today, there are hundreds of binary options platforms available to the public over the internet. The numbers and types of options available depends on the broker, but most now offer between 25 and 100 popular stocks, indexes and even certain commodities as well.
Caveat Emptor: Buyer Beware
Unfortunately, binary options trading is not regulated well enough or widely enough to be considered a universally reliable investment alternative. The location and management of internet-based platforms, in particular, can easily be disguised to escape law enforcement and governmental oversight. This has led to the creation of a plethora of fraudulent binary options trading by firms that claim to be legitimate brokerages but, in reality, are not licensed to conduct trade and are not plugged in to any market.
In response, some countries have curbed or prohibited binary options outright. The United States permits binary options trading only on domestic, regulated exchanges, while Israel, Belgium and Canada outlaw it entirely. Australia made it illegal for unlicensed brokers to offer their services to Australian citizens. France prohibited binary options firms from advertising electronically, and The Netherlands prohibited all forms of advertisement, regarding it as deceptive. Since then, The European Securities and Markets Authority (ESMA) has temporarily banned sales of binary options to retail investors in all European Union (EU) member countries.
