Binary options are often referred to as scams. As financial instruments that has more in common with casino games than they do with stocks and other investments. Many will tell you that it is impossible to earn any money from binary options and that they are designed to make sure that you always lose money. That no one who knows better would ever trade with them. Me myself recommend that people avoid them. Despite all this I trade with them regularly. In this post I am going to explain why this is. Why I trade with a financial instrument with an awful reputation. A financial instrument that I discourage others from trading with. You can read more about my investment strategies here and my investment goals, here.
The bad reputation
Lets starts by looking at why binary options have a poor reputation, why they are often referred to as scams.
People have a lot of misconceptions about binary options and a lot of traders start trading without really understanding the answer to the question “how do binary options work?“. All information about how binary options work are freely available on numerous websites. Most brokers provide detailed information about how the options work. It is very easy to learn how binary options work if you want to do so. A lot of traders are unfortunately too lazy to read the information provided and just assume that they understand how everything works. They assume that binary options work the same way as regular options. This is not the case.
Traders start trading with these options without understanding how to use them effectively. Without understanding that you need to be a skilled trader to make money. Unskilled traders will lose money and all new traders should always use their demo account to train until they become skilled traders. Binary options brokers make their money from the large quantity of unskilled traders that starts trading with real money before they are ready. Traders who in their hubris thinks that they are skilled enough to make money without ever taking the time to learn if they really are.
Binary options have been advertised very aggressively and it is very common that the advertisement make it seem easier than it actually is to earn money from binary options. The ads make it seems like anyone can start trading with binary options and earn large profits. This is technically true, anyone can make money if luck is on their side, but it disregards that fact that most unskilled traders will lose money. You need to be skilled to be able to make money from binary options. Most people who see the ads and think that binary options are going to make them rich will lose a lot of money.
Binary options might not be a scam but it is fair to say that a lot of the ads are dishonest.
The adds make people think that it easier to make money than it is.
Passing the blame
Traders who have been too lazy to do their research or that has fallen for the misleading ads that make it seems easier to make money than it really is will often feel scammed. Claim that binary options are a scam. It is easier to pass the blame on to someone else than to admit that they where too lazy to learn how the options really works. Too stupid to remains skeptic to the ads and find out the truth before they started trading with binary options. All the information they need to make an informed decision is freely available and easily accessible through google or on the brokers website.
Impossible to make money
It is not true that it is impossible to make money from binary options. A lot of people are making good money from binary options and me myself make modest profits from the trade each month. I would be able to earn more if I was able to devote more time to the trade. If I was willing to devote the time necessary to become a truly skilled trader.
It is true that each option is design to make the broker money. You lose all your money if your option matures outside the money but you earn a lot less (70-90%) when an option matures in the money. The broker has an edge on each option. If you were forced to buy random options than it would be impossible to earn money. But you are not forced to buy random options. You are allowed to pick and buy exactly the options you want to buy. This gives you the edge to earn money. If you are skilled at picking options that matures in the money then you will earn money.
Why I trade with them
The simple answer to this questions is that they allow me to make money. They allow me to get a good return on invested capital with minimal effort.
The more complex answer is that binary options can be used to hedge other investment such as FOREX or CFD positions. This allow me to reduce the risk of certain high risk trades. In some cases I am able to completely eliminate the downside of certain positions. I am hoping to address this topic in a more in depth post at a later date.