A binary option is a type of financial instrument that allow you to quickly earn a large return on you money if you are able to correctly predict the market movements of the underlying asset. If you predict the market movements incorrectly then you will lose your entire investment. There are only two possible outcomes, a large profit or the loss of all the money you invested. You can usually not close your position early and there is no other possible outcomes. This is why the options are called binary options. They have a binary outcome, 1 or 0, win or lose.
Binary options are traded against the broker. You are not buying and selling assets with other investors. Binary options are designed in such a way that they offer the broker an edge towards the trader. It is not enough to be able to predict the market correctly 50% of the time if you want to break even. You need to be correct about 60% of the time to break even. You can read a more detailed introduction to binary options by visiting www.binaryoptions.co.uk.
Critic against binary options
The fact that you are trading against the broker has caused the trade to receive a lot of criticism. Some people claim that it is nothing more then disguised casino gambling and others are calling binary options a pure scam. Binary options can trace their origins to online casinos but have evolved a lot since then and are now regulated as financial instruments. They are no longer gambling and there are a lot harder requirement on the brokers than there were in the early days when they were found in casinos.
To compare the binary options of today to a casino game is ridiculous. If you want to compare them to a game then I would say that poker is a better comparison. Poker is just like binary options a pursuit where luck plays a role in each individual case and where it is possible to lose a lot of money. But in both poker and binary options you will find that skillful players/traders are able to consistently earn a lot of money by being more skilled than other players/traders. This is not true for casino games. They can never be beaten no mater how well you play. (lets disregard card counting in black jack for the moment).
It is true that a large percentage of all binary options traders loses money until they get experienced. It is also true that many traders give up before they learn to be successful. None of this make them into scams. Brokers are very open with exactly what binary options are. You see exactly what is required for a binary option to mature in the money and how much you get if they do. In many ways this makes them more honest and transparent than the stock market.
With this said. There are way too many traders who start investing in binary options without understanding what they are trading and that end up losing a lot of money. When they finally decide to learn more about binary options they become shocked by the fact that they have traded against the broker and feels scammed. This was never a secret and the lack of knowledge among certain traders does not make the options themselves into scams.
None of what have been said above makes binary options into good investments. They are not and should never be seen as investments. They do not have any sustainable value and is therefore not investments. Binary options are a way to speculate on and make money from the movements of the underlying asset. They are high risk high return financial instruments that should only make up a very small percentage of your portfolio. You should never allot more than 1-2% of your capital for the trade of binary options and you should never trade binary options using money you can not afford to lose.
Trading with binary options can be very profitable but it very important that you realize “what they are” and “what they are not” before you start trading.