If you had asked me a few months ago whether or not I thought binary options were a scam my answer would probably have been ‘Yes’.
I have simply come across too many unscrupulous brokers, scams and horror stories to think otherwise.
In fact, I came across a scam just recently when I inadvertently clicked through on a Facebook ad. This particular scam portrayed a con artist who claimed to be making thousands of dollars by operating what was essentially a martingale betting strategy on a binary option.
Of course, the martingale strategy is the most stupid betting technique around so this was one of the clearest rip-offs I have ever come across.
However, my opinion has changed in recent weeks, partly due to some investigation into the binary options available on my principle trading platform (IG Markets) and after reading the excellent Binary Options Unmasked, by Anna Coulling.
After all, how can the binary option be a scam when there are in fact at least two binary options available to investors on the prestigious CBOE (Chicago Board Options Exchange).
And Coulling’s book actually reminded me of a website that I used to use called betonmarkets.com, a service that allowed you to make fixed odds bets on certain financial outcomes. Outcomes such as whether the FTSE would close higher or lower than a certain level, or whether or not it would touch a certain price point.
Well, if you think about it, there is hardly any difference between those fixed odd bets and what binary options seek to achieve. And in fact, betonmarkets.com has now rebranded itself into binary.com.
Like Anna says in the book, binary.com is surely the best fixed odds binary options service available and it is the only service I would consider using for those instruments. In fact, the majority of other binary brokers are merely white label services, many of which are unregulated and fraudulent.
Binary.com, however, is properly regulated and has payouts that can actually rise over 100%. Whereas for other providers, the payout is often less than 85%. (Which means if you bet $100, the most you will receive back is $185, including your original stake).
Open-ended binary options
Moving away from the world of fixed odds, there are also open-ended binary options and these provide traders with even more flexibility.
Here, the principle difference is time and the ability to trade in and out of a binary option as many times as you like before the option expires. This takes the binary experience further away from betting and towards trading and it therefore gives traders more flexibility and a better chance of success.
Under this guise, open-ended binaries are more closely related to vanilla options, which are of course regarded as legitimate trading instruments. The advantage being that binary options are easier to understand than vanilla options. (Although the suggestion that binary options are simple is not completely true because they are also very sophisticated instruments in their own right.)
As of writing, the best place to trade these types of binary options are with Nadex (in the US) or with IG Markets (for everywhere else). On these platforms you will find a whole range of binary options ranging from 20 minute options to weekly options across a wide spectrum of markets.
And you will find bets such as no-touch, one-touch, up/down, ladders and more. On IG, you will also be able to bet on political events and economic data releases such as the outcome of non-farm payrolls.
Understanding the spread is key
Of course, just because binary options products at binary.com, Nadex or IG are not scams, that does not necessarily mean that they are easy or that you will make money trading them.
The key to any binary option will always be the spread between the two outcomes and your ability to analyse the probabilities involved.
The spread, after all, is no different to the zero and double-zero numbers on a roulette table, and it is this spread that allows the binary options broker to build a book and win the majority of the time.
Winning at binary options therefore requires great skill in forecasting the market. Only by analysing news, price and volume effectively will you be able to trade binary options at the right time and come out ahead.
The good news, however, is that binaries are still in their infancy and like Anna says in Binary Options Unmasked, spreads are likely to become tighter as time moves on and providers will become better regulated and perhaps, easier to beat.
So are binary options a scam?
No, it’s clear that binary options are not a scam product but they can be in the wrong hands.
All in all, don’t be afraid to look more closely into the world of binary options and see if it is an asset that you might do well in. Of course, remember to treat them with respect and to trade responsibly at all times. A good idea would be to practice on a demo account first. And both binary.com and IG Markets have such options available.