A lot of retail investors are currently turning to binary options to trade the forex market. The fact that these instruments are short term and with predefined payoffs enable some traders to assess their risk more accurately or can provide a cheap hedge on a global forex portfolio. Nevertheless, binary options have come under a lot of criticism in the press with lots of people dismissing it a glorified gambling activity with the event simply the financial markets rather than sport etc. Binary options are nothing like casino games and gambling. The strategy and the arguments supporting the investment are completely different. Casino games are, most of the time, probability games. You get a return based on the probability of a particular outcome and the player is always at a statistical disadvantage to the 'house'. The casino has a positive edge and the house always wins in the end over enough games.
Indeed, what most people don’t understand is that binary does not mean there is 50%-50% chance of a particular outcome. Binary only means that at the maturity of the option, only two alternatives are available, either you earn the predefined payoff or you loose your invested amount. Investing on a binary option has nothing in common with betting on casino roulettes where the probability of a red number coming up is truly 50% (it is even less than 50% if you take into account the 0 an 00 numbers). This is called gambling. It is the same as sports betting when you get a return that is propositional to the odds of a team winning against another one. This is the pure definition of gambling.
With binary options and most finannial instruments available to retail investors, the return does not rely on the probability of an event. Most of the time, you earn the same return whatever the direction you want to invest in (High binary option or Low binary option) at the maturity of the contract. With binary options, you are investing on assets that are impacted by many more factors than only probabilities. The EURUSD is likely to evolve in a lot of different directions over a trading session. And the asset price will be impacted by many events over the course of the day. It will react to any macro data release from the US or the Eurozone, it may also react to central bankers' comments or major financial institutions research papers.
Even in terms of regulation, the Financial Conduct Activity, which is the official financial regulator in the United Kingdom, officially announces that it started consulting the government about its intention to regulate binary options and work on the transition of their regulation from a gambling product to a financial product, with a full set of procedures.
*This post was published according to the "Contributed Article Terms and Conditions"