Binary options and Gambling
There are many articles circulating on the Internet these days that tend to equate. Such articles tend to degrade the ‘trader’ and replace the word with ‘trader’ with ‘gambler’, all in an effort to discourage binary options trading. While the purpose of such articles is unknown those curious about binary options trading would definitely find the article discouraging them from trading. So is binary options really just gambling or are such kind of articles misleading?
Investment = Speculation = Risks
Ever come across a finance portal or a website that talk about stocks or some other financial markets? In most likelihood you might have come across the disclosure about how risky it is to invest and that financial investment is not suited for everyone. Such kinds of disclosures are required by law and are often seen on even some reputable websites.
The truth about investing is that it is nothing but gambling on a large scale. However, there are not many articles that are written about such investments… Bonds, stocks or even real estate. The fact is that financial investments are risky and in a way is a gamble. The chances of making a profit on an investment is always 50 – 50, just the way you flip a coin for heads or tails. So doesn’t this by definition equate to gambling? And how different is binary options from the above, where speculation for a price rise or drop is based on the time the contract expires?
The business of financial speculation is vast. In other words, it is commonly referred to as speculative trading which ironically is employed by some well known globally established banks. Binary options, as we know are a derivative of the underlying security. Although it might differ in the way they are traded, the basic goal of binary options and forex or even stocks is the same. Buy at a low price and sell at a high price. With binary options, it is a little bit different as a trader bets on the price direction within the duration of the contract’s expiry time. This leads us to question… so aren’t the big banks gambling too?
One element that is common to the above is risk. Gambling is risky and so is financial investment. However, the risks are better managed when they are more calculated. For example, it is considered a worthwhile investment to risk a small amount in hopes to double or even triple the investment amount. Such an approach is referred to as taking a calculated risk. Trading is no different to taking calculated risks. For example, one of the articles mentioned previously, we talk about how to profit from news trading and short term binary options contracts. Such kind of a strategy gives us a calculated risk. Meaning that, a trader invests an amount in hopes of making a profit based on a common underlying theme that plays out in the market day in and day out.
When does trading become gambling?
Trading becomes gambling when the trader begins to trade on emotions and gut feel. Greed and fear rule the emotions here and it is easy to get drawn into such type of trading. Unfortunately, most traders tend to fall for this trap, which is why it has led to so many critics that call for binary options or trading as a whole as gambling and nothing more.
A gambler would trade simply based on gut feel or be engulfed by emotions and starts to trade CALL and PUT options for example with no real reason why.
A trader on the other hand, researches, calculates the risk and ensures that the trade that they make gives back more than the amount that they risk.
Once a trader understands this basic philosophy, trading no longer becomes gambling.