Binary Options are the hottest new game in online trading. No experience necessary, step right up and place your wager! A quick Google search reveals thousands of ‘brokers’ offering hundreds of dollars in sign up bonuses and promises of 70%-85% returns in minutes! If this sounds sexy baccarat familiar, you may be remembering the explosion of offshore online casinos that sprung up all over the net a few years back before the federal government began enforcing the UIGEA (Unlawful Internet Gaming Enforcement Act) in 2010.
Being an avid sports bettor and market enthusiast, I couldn’t ignore the correlation that binary options has with gambling. In this form of trading you are given two options to choose from: up or down. Is the particular security, currency, or commodity going to move up or down in the respective time period that you have chosen. Kind of like: are the Patriots going to win by 3 or not? Is the score going to be higher or lower than 43? You can see where this is going right?
Most legitimate brokers I have spoken with consider binary options to be a straight gamble, but still a legitimate trading vehicle. The problem with binary options that are being offered online right now isn’t with the system itself, it is with the ‘brokers’ that are offering it. As one trader put it: “they are straight snakes. Who offers 100% match bonuses with a trading account?” In full disclosure, legitimate brokerage houses do offer bonuses to new customers of up to $2500 (for a million dollar deposit), and most binary options sites have a limit as to the bonuses, but some do not. So how do these options houses stay in business?
To answer that question, we need only look at their ads and do some real math. These sites offer 70%-85% and sometimes higher returns on your investments, so you automatically assume that for every dollar you invest, you will get $1.85 in return. And this is true, if you win every option that you place. That would be perfect if these sites were in Fantasy Land, but we all know that you are not going to win every time. The small print tells you that you will lose 100% of your investment when that option doesn’t come in. In essence you are risking $1 for $0.85 on what is essentially a 50/50 proposition. Those my friends are terrible odds.
At these odds, you need to win 58.8% of your options just to break even. To put these numbers in perspective, let’s take a look at the entertainment capital of the world. The average $1 slot machine in a casino on the Las Vegas Strip pays out at 94.67%. This means that for every $1 you play, you will be paid out around $0.95. That’s almost ten percentage points better than these ‘investment brokers’. The question you really need to ask yourself is: would I pour my investment money into a slot machine? At least in Vegas you can get free cocktails!