For a lot of investors, the idea of trading binary options can be exciting. In this style of trading, you’re essentially trying to predict whether a given asset or currency pair will be higher or lower after a given amount of time. You enter the trade at a given value and speculate as to whether that value will go up or down, with the potential to win back your investment plus 60-100 percent if you’re correct. We went over binary options for beginners in more detail in a previous article, but that’s the general idea.
Frankly, what tends to be appealing about this is that you don’t have to make a decision about when to cut your losses or take your winnings, so to speak. When you make an ordinary investment, you’re also acting on your own prediction as to whether the asset will increase or decrease in value; but then you have to watch it move and decide when you’ve reached the most strategic point to sell your shares. With binary options trading, you’re simply relying on the value going up or down; the amount you stand to profit based on your initial investment is predetermined, rather than decided by your own decision-making regarding a sale. A lot of the pressure is taken off.
But as appealing as binary options trading can be, should it be avoided? Many have long dismissed it as little more than a form of gambling, and others have questioned the integrity of the firms facilitating the trades. The former concern is more or less a judgment call; really, all investing could be described as a form of informed, strategic gambling, and it’s up to each individual to decide if this is a problem. The latter issue, however, seems to have become more severe in the last year or so.
Way back in January of this year, we saw perhaps the most dramatic indication that the binary options trading business may be on the verge of collapse when a firm called Banc de Binary was shut down for its questionable practices. Banc de Binary was in trouble for numerous reasons, but as one write-up of its closing put it, the incident brought renewed attention to an industry that has been under ever-increasing scrutiny for a while now. For some, it confirmed the long-held suspicion that binary options trading is effectively a scam.
Again, in the case of Banc de Binary there were several different problems that ultimately combined to lead to its being shut down. But there are some more general concerns with binary options trading that are now receiving a little bit more attention. To put it simply, people controlling trading platforms have the ability to manipulate values in order to guarantee that they “win” a majority of trades against investors. To say that each and every platform is doing this would be unfair, and by extension it’s probably not appropriate to say all binary options trading is a “scam.” However, this appears to be a common enough practice that investors would be wise to keep their distance.
Furthermore, it can be the case that if you are scammed, or if you feel you have a legitimate dispute over the outcome of a trade, there’s no guarantee you’ll get your money back. While there are some legal avenues you can explore to take action against the broker or even turn to the government for help, there aren’t guarantees. Basically, you can’t insure yourself against potential binary options fraud – which, sadly, is a common practice.
This can still be a very appealing form of trading, perhaps to inexperienced investors more than others. But this is all important to keep in mind if you’re considering it.