Binary Options: A Trading Tool That Must Be Understood Deeply

What is Binary Options?

Binary Options (Binary Option) are a type of options contract that offers a two-tier payout structure, meaning traders will receive a fixed return or lose their entire investment. The payout depends on whether the underlying asset’s price moves in the predicted direction or not.

Investors need to forecast whether the price will go higher (Call) or lower (Put) within a specified time frame, which is generally very short, ranging from 1 minute to 15 minutes. If the prediction is correct, investors can earn approximately 70-85% of their invested amount. If incorrect, they lose the entire investment.

How Binary Options Work

This tool functions similarly to a guessing game. Traders place a bet and wait until the time expires. If their prediction is correct, they receive an immediate payout; if wrong, they lose all their money.

Trading Example: If the GBPUSD pair is at 1.3902 and the trader believes that in 5 minutes the price will go higher, they open a Call Option by investing $100. If the actual closing price is above 1.3902, they will receive $185 — $100 initial investment plus $85 profit. If the price drops, they lose the entire $100.

Is Binary Options Gambling?

This depends on the trader’s approach.

Gambling case: If trading is based on random guesses driven by emotion, without a money management plan, market analysis, or risk calculation, then this structure is essentially gambling.

Not gambling: If trading involves a balanced plan, price analysis, risk management strategies, and careful risk assessment, then it is more likely to be considered an investment based on principles.

Legal Status of Binary Options

(Thailand) Thailand currently has no laws regulating binary options trading, so investors bear the risk of their funds’ safety. If issues arise with foreign brokers, investors must pursue legal action themselves, which can be costly and difficult to enforce.

###Other countries with bans###

Many countries have announced bans on this type of investment due to high risk:

• Australia: ASIC found that only 20% of retail investors profit from this instrument and announced a ban starting May 2021.

• European Union: ESMA has prohibited marketing and selling binary options to retail investors since March 2018.

• Canada: Bans online advertising and trading options with less than 30 days expiry.

• Israel: Considers it gambling, not an investment.

• Germany: BaFin plans to ban advertising and distribution to retail investors.

Comparison: Binary Options vs. Forex

Similarities

• Both are financial instruments that can be traded online.
• Allow starting with small capital.
• Profitable in both rising and falling markets.
• Offer high returns if predictions are correct.

Differences

Time frame and accessibility

• Forex: 24-hour market during 5 trading days, accessible at any time.
• Binary Options: Must consider the opening and closing times of the underlying asset.

Instrument lifespan

• Binary Options: Very short-term expiry (1-15 minutes), cannot be modified after opening.
• Forex: No expiry date; positions can be held as long as desired.

Volatility and risk

• Binary Options: Volatility does not affect returns since payout is fixed upfront; risk is limited to two outcomes.
• Forex: High volatility directly impacts profit and loss; traders can manage risk with limit/stop orders.

Profit potential

• Binary Options: Fixed returns around 50-80%; leverage is not available.
• Forex: Higher returns, up to 200% with leverage; traders can set take-profit and stop-loss points.

Which trading method is suitable?

Choose Binary Options if:

• You want clear and bounded risk.
• You can consistently achieve an win rate of 80% or higher.
• You prefer short-term trading.

Choose Forex if:

• You seek higher returns.
• You want flexibility in managing positions.
• You have skills and can profit even with a lower win rate by adjusting take-profit and stop-loss points.
• You are willing to accept higher risk.

Summary

Binary Options are trading tools with the advantage of clear, calculable risk upfront. However, they have limitations in potential returns, and their legal status remains uncertain in many countries. Forex offers greater flexibility and profit potential but involves additional risks.

Investors should thoroughly understand each instrument, assess their own skills and risk tolerance, and choose trading methods aligned with their goals and strategies. Success in investing comes from education, planning, and continuous improvement.