Is Binary Option Trading Gambling

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Is Binary Options Gambling?

By Markus Silvester – July 28, 2020 4:37 am

Binary options are not gambling simply because there are market patterns and trading strategies one can exploit in order to make a structured approach to trading. These are called chart patterns and are used all around the globe, not only by binary options traders and forex traders but also by investment banks’ employees who run the trading desks. Also binary trading can use insights of fundamental analysis too. Gamblers on the other hand, rely primarily on the luck.

Chart analysis is a legitimate tool to analyse the market and predict future movements in prices. This does not mean that there is no risk and that any simple strategy will do. There is a lot of work each trader needs to do before she can become a true master of the market. On the other hand, gambling involves luck.

  • In casino games, players are dependent on the system settings
  • In sports betting, players depend on many variables that determine the outcome of the match. Also, not all matches bring best returns, while higher grossing matches also carry more uncertainty.
  • Poker is a game of skill and players rely on a different set of individual and non-structured guidelines they themselves came up with. Poker has in many ways a lot of parallels to trading & markets.

Criteria are not clearly objective.

3 most popular ways to gamble are

    • Casino Fixed Odds Games (such as roulette)
    • Sports Betting (such as betting on an NFL team)
    • Poker (such as Texas Hold’em)

Casino Games

Casino games are nothing like trading binary options. Taking positions in the market vs betting on a roulette is not the same. In casino games, you get a return based on the probability of an event and it is always at a disadvantage to the player/trader. The house has the edge and the house always win in the end.

Sports Betting

Some traders might consider binary options to be very similar to sports betting, but they would be wrong. In sports betting, bettors are usually placing a bet on the final outcome of a game that lasts let’s say – 90 minutes. In binary options trading, traders are placing a real trade on the outcome of price movement after the options time has expired. But that is where all similarities end.

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  • BINOMO
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Sports betting is still just betting, while from a legal point of view, binary options are considered to be a financial instrument. They are regulated in a different way and cannot be compared. Betting and binary options are not the same thing and cannot be seen as such.

Binary options, as all types of financial trading, have some risks attached, and traders have to be aware of them. Betting, also involves risks, but as a fairly old phenomenon, it is more familiar to the traders than binary options trading.

All readers who want to experience binary options trading should be cautious, get proper education and trade with regulated brokers.

Estimate the Future

Nobody can predict the future. We can all speculate and try to predict it based on knowledge, feel, and experience, but you can never know all the variables. The reason why binary options are more interesting and profitable than sports betting is that you are betting against the market. You can find a nice market and gain an edge. Winning punters get banned from betting at bookmakers or limited to bet very small amounts as the bookmakers way of saying “Go away! We do not want your action”.

In binary options you are not typically betting against ‘the house – it depends on the liquidity. In many cases, broker will step in and take the other side. The brokers are simply buying and selling your positions by trading with others. If two people place a bet, one bet call and one bet put, the broker has no risk. For you to take a negative position on the Apple Inc shares, somebody needs to be willing to take the opposite position. If the broker is not willing to take a too high exposure on a position, they can go and buy the opposite position in the market which means they will profit with a smaller margin but also take very little risk.

Poker

Poker is by most poker players considered to be a skill game. On the contrary, most governments label it as gambling. Poker and binary options have several similarities. A skilled poker player has an edge vs. a newcomer to the game just like a skilled trader has an advantage over a random person on the street. Short term, the inexperienced can be just as profitable as the skilled trader/player and in some cases even more profitable. It is hard to argue that becoming an experienced trader and obtaining knowledge about different strategies while possessing a general understanding of the game/market will not have a positive impact on your ROI. Short term, luck does not make one resilient in the market long term.

Online Binary Options Trading Platforms and Poker Rooms

In poker and binary options trading, you do not necessarily play against the house. On a small scale you do; on a large scale you do not in binary options trading. The ‘house’ takes a small fee of your trades. The brokers naturally need to pay its staff salaries, marketing is costly and the online binary options brokers are being scrutinized by governed financial institutions securing the company is following the laws and regulations. We highly recommend that you only deposit with brokers that you find listed on our site. This will secure safe payouts and should you face any difficulties we can assist you.

Analyzing Patterns

Poker involves a high degree of analyzing peoples´ betting patterns when doing an opponent check, bet, raise or fold in certain situations. When you start picking up a pattern, you gain a financial edge and stand to increase your profit rate. Keep in mind you will always make mistakes regardless how savvy you become. Another important factor is that in poker, as well in the stock market, people can get distracted by their emotions. They hang on to a hand that looked good 5 minutes ago or keep shares because they have a personal relation to the company beyond pure and simple profit making. On the contrary, one might possess knowledge or have a secret strategy hence buying when then the most obvious move would be selling and cut the losses. You never know for sure. That is the beauty!

Binary Options Trading

Binary options trading can be learnt if one takes enough time to learn all about technical and fundamental analysis. Traders need to know basic chart patterns and indicator tools so they can start gaining experience in the market. We always recommend using the demo account to test one’s abilities before investing real money and trading. This way traders can see at which level they are and how much more they have to improve to become truly successful traders.

7 Binary Options

Are you also still doubting whether binary options trading is gambling or not? Let us answer all your questions in this article.

Binary options trading is a hot discussion topic anywhere in the world. There is a lot of information out there and it is difficult to make sense of it all. And the truth is that there is really false information out there and, as a result, a lot of false conclusions are drawn from it.

This article will attempt to cover all the major questions around whether or not binary options trading should be classified as gambling or trading and whether it is a legitimate financial instrument.

If you have read our recent update on binary options regulations around the world, you have probably noticed that many countries are not sure how to classify binary options. Some choose to consider it a financial instrument while others still treat it as gambling. This shows a very weak understanding of the industry by even most qualified institutions. Some seem to imply that there is only one type of binary options when in fact there are many. For instance, there are those binary options that are fully regulated, trading on the NYSE and NADEX. There is also Binary Options Exchange. where one is able to be a writer and a seller of binary options.

Gambling or financial instrument?

Let’s set one thing straight and define once and for all what is gambling. If we look up this word in Merriam-Webster dictionary which is one of the most widely used English dictionaries out there, we’ll find out that gambling is defined as “to bet on an uncertain outcome”. Isn’t trading of any kind corresponds to this definition? Well, it really depends on what you looking at. If it’s an individual trade we are looking at, then it might be. But if you are trading a system that has a positive expectancy, then there is nothing unpredictable about it – you are making money!

So maybe it’s better to take a different approach to defining what is gambling and what is a financial instrument? For that, let’s try to answer two questions:

  1. What are we trading? If it’s not a system that overall has a positive expectancy, then the outcome it truly unknown and we are gambling, not trading.
  2. How are we trading? If we are following a trading strategy that has a positive expectancy, then everything is fine. If not, then we are gambling.

Let’s now look at some examples to illustrate this:

  1. Slot machines in a casino. Without any doubt, this is gambling. The outcome is unknown and if you play long enough, you will surely lose. Everyone knows that the house always wins.
  2. Trading with a system that has a positive expectancy. This is clearly what we define “trading”, as over a period of time you are sure to make money.
  3. Trading stocks without a system that has a positive expectancy. Now, this is gambling. If there is no sure positive expectancy, then we are still likely to lose money over a long period of time.

Expectancy type settles the dilemma

So, coming back to the question of whether or not binary options should be considered as gambling, we have to carefully look at each category of binary options and decide whether it is possible to develop a system with an overall positive expectancy. If such a system cannot be developed, then this following up on it is gambling. However, if there is a possibility of developing a system with a positive expectancy, then this is called trading a viable financial instrument.

If you on the surface of trading using OTC (over-the-counter) binary options broker, this might be considered as gambling. On the other side is always a broker and the odds always in broker’s favor. This is because in this situation you can only a buyer here, buying a put or call option. And even if you are right, you are still to make less than what you are risking. For instance, if your broker offers 80%, you are to make only $80 on the trade where you are risking $100.

So the only way you can be sure you are trading and not gambling is to develop a system that has a positive expectancy. For this, please follow our Education series to find out more about various strategies and options types. Educating yourself and practicing is the only way you can be sure that you are trading using reliable financial instruments.

Binary Options – Trading or Gambling?

If you’re still unsure whether binary options is more like gambling you should read this article.

This guest article was written by Simon Klein who is a professional trader with over 10 years of trading experience. Simon has a passion for trading and loves to train and coach others – whether a complete beginner or an experienced trader. He is also the founder of TradeSmart4x.com.

Binary Options are a hot topic at the moment. There is a lot of misinformation out there and conclusions are being drawn based on a lack of knowledge instead of being based on a deep understanding.

This article will cover the interesting topic about how to classify whether the activity you are doing is considered trading or gambling and will uncover how to ascertain whether what you are trading is a financial instrument or not.

It appears, based on a recent article, that regulators in different countries do not know whether to classify binary options as a financial instrument or gambling. This statement shows a shallow understanding of binary options as well as financial instruments. There are a number of types of binary options and this article appears to imply that there is only one. For example, there are fully regulated binary options that trade on the NYSE and NADEX. There is also a Binary Options Exchange where you can be the writer and seller of binary options.

Gambling or financial instrument?

According to the Merriam-Webster dictionary, gambling is defined as “to bet on an uncertain outcome”. Isn’t trading any financial instrument according to this definition gambling? Well, it is if you are just looking at the outcome of one individual trade in isolation. If on the other hand, you are trading a system that has a positive expectancy then the outcome of a large enough number of trades is not uncertain anymore – you will make money!

I would like to offer a different and novel approach to understanding the nature of trading and gambling.

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The approach is based on a two prong analysis that looks at both the nature of the “instrument” that you are trading and how you are trading.

  1. What are you are trading? If there is no system that can be developed that has a positive expectancy, then you are gambling and what you are “trading” is not a viable financial instrument.
  2. How are you trading? If you trade any financial instrument without a strategy that has a positive expectancy, then you are gambling.

Let us take a look at a few examples to see whether you are gambling or trading.

  1. Playing the slot machines in a casino. This is clearly gambling as the odds are in the favor of the slot machines over time. If you play long enough you will always lose. The casino always wins.
  2. Trading options with a system that has a positive expectancy. This is clearly trading and not gambling as you will make money over time even though the outcome of any one trade is unknown.
  3. Trading stocks without a system that has a positive expectancy. This is clearly gambling according to our 2 prong test above, as it is uncertain whether you will make money over time. So in this example, you can see that even though you are “trading” a financial instrument, what you are doing is still considered gambling.

Expectancy type could settle the dilemma

To address the issue as to whether binary options are gambling or trading, you have systematically look at each category of binary options and decide whether you can develop a system that has a positive expectancy or not. If there does not exist a system of trading that has a positive expectancy, then you are gambling and what you are trading is not a financial instrument. If on the other hand, you can develop a system of trading that has a positive expectancy, then you are trading and what you are trading is a viable financial instrument.

If you take a look, on the surface, at trading binary options through an OTC (over-the-counter) binary options broker, it would appear that you may be gambling. This is because, on the other side of each of your trades, is the broker.

The odds are in the broker’s favor. This is because you can only be the buyer of the binary options. You can either buy a put or a call. If you win you will always profit less than what you risked. For example, in the language of most binary options brokers, you can make 80% return if you are right. This means that you will have to risk $100 to make $80 and if you are right 50% of the time, you will have a negative expectancy. The broker, on the other hand, will have a positive expectancy.

The only way that you can make money over time when your reward is less than your risk is ONLY if you are able to develop a system of trading that increases the percentage of winning trades to a point at which you will have a positive expectancy.

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    Best Binary Options Broker 2020!
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  • BINOMO
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    2nd place in the ranking!

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