Binary Options – Forex Academy

There are many ways to lose your money in this world but here’s one you haven’t met before: Binary options websites (digital options or fixed-profit options). An innovation that has shown great growth in recent years, but as social trading and managed accounts, is something so new that there is very little information about it.

The sites attract the same kind of people who play online poker and other types of casino games. But somehow they have an aura of being more respectable because they present themselves as a form of investment. Don’t get your hopes up. These are simple, pure gambling sites. It is naturally a matter of time before local authorities sanction them, as well as with the European authorities. Did they promise you that you can live on binary options? then everything you need to know about them.

What are binary options?

Earn 70% in one hour! Limited risk! you simply have to predict the trend and bingo! No experience is needed! Try to google binary options, and that’s what they typically use to sell to you. The material is more focused on attracting speculators who are not careful, than on attracting and teaching prudent and serious traders and investors how and when to use binary options. Like most rational adults, you should stop believing in promises to get rich fast just like you did when you stopped believing in Santa Claus.

The rise of binary options for forex and other instruments has literally been exploited since 2010-12 by the combination of simplicity and its high-profit potential. Then, you can enter a bet (which is really so) on anything that is publicly traded, depending on the website you use. Some sites offer free guides on how to get started with binary options.

Here is a brief summary of the key points you should know to get an idea of binary options as another alternative to lifelong trading in forex, stock exchange, commodities, cryptocurrency, and ETFs. Read on for more information or start trading and see for yourself as the classic CFD trading, not the bets, can make you win a lot of money.

Here are the 5 points you should know about binary options – the most important lessons you will learn.

A Risk-Negative Benefit Ratio

Something common for the trader is to make 75% of what he bets correctly. For example, if a trader places $100 betting on the value of the Eurusd going up, and he hits, he will receive $75 plus his initial investment. If the value of this pair goes down, the trader loses 100% of what he bet.

That means you have to hit 55% of the time not to waste your money and most of the time to try to make money with binary options. The house naturally has an advantage. Binary options work much like a roulette wheel: if your prediction is incorrect, you will lose the entire capital that was risked, but if your bet is correct you get your money plus a profit.

Those who are better able to manage capital and risk will generally be more able to get better risk/benefit ratios with forex and difference contracts, where the risk management rules tell them to bet only when there is at least one risk/benefit ratio of 1:3.

Forex traders and difference contracts can be winners with a small percentage of successful transactions. Negotiating difference contracts is more about how much you can do when you’re right and how little you can lose when you’re wrong using tools like Stop Loss and Take Profit.

It Is Impossible to Know Price Movement In Advance

No one, no matter how much knowledge they have, can consistently predict where a currency pair, stock, or commodity is going to move in a short period of time. Will the gold price go up or down in the next 10 minutes? Unless a major event has just occurred, there is no way to predict that. In order to make money by trading gold, for example, one must understand these 3 things about it:

How to invest in gold?
How to invest in shares?
How to invest in forex?

Do Not Place Orders in Advance

This means you must be ready and waiting if you want to enter a specific point. That is really an inconvenience, and for those who are not always seeing the markets (and who does), that can mean lost opportunities and absolutely no flexibility.

In traditional forex trading and difference contracts, traders are free to decide where and when they can enter the market, how long will they remain in their positions? , and under what conditions they will leave. As a result, the markets have no power over the traders and do not generate any expectations from them.

Most of the merchants (and we speak especially of those who are more novices in the markets) are very unaware of different types of orders such as Market, Stop, Limit, or combo. And commands are like tools: you want the right one to do the job.

The way to do this in a simple way is to use the “limit” type orders that dictate how much you want to pay… always in advance. You get that price or the order doesn’t go through.

A Limited Selection of Instruments

Most binary options brokers do not offer a wide variety of trading instruments like most of the best forex brokers, however, they offer the most popular instruments, which is a problem for some traders.

Binary options brokers offer fewer services. For example, graphics packages, as well as training and mentoring in trading tend to be minimal or non-existent. Binary options traders will need to find their own software for graphics as well as for data analysis in order to make a true technical analysis.

They Are Not Regulated

Finally, these websites are unregulated. No authority is protecting people’s interests. This is a financial Old West. The Financial Conduct Authority (FCA UK) has obliged a permanent veto on the sale of binary options to retail customers to reduce the risk of fraud and prevents the amount of £17 million a year in consumer losses!

Frauds through binary options are under the spotlight of the police. Even the FBI has commented that binary options trading is very dangerous and has classified it as a new form of fraud, here is the FBI’s message and link:

Stock options. It is a fairly common investment term, in general, that one party sells or offers another the opportunity to invest by buying a particular share at a previously agreed price over a period of time. Everything perfectly legal and highly regulated- and if the investor takes advantage of the opportunity and action has a good performance, there is a benefit to be obtained. And if the stock doesn’t perform well, well, the investor knows the risk.

But here is another similar financial term from which the public must take care-binary options.

Binary options fraud is a growing problem, which the FBI is targeting. In 2011, our Cyber Crime Complaints Center (IC3) received 4 complaints-with reported losses of just over $20,000-from victims of binary options fraud. Five years have passed and the IC3 has received hundreds of complaints with millions of dollars in losses reported during 2016. And those numbers only reflect the victims who have reported to IC3-The true extent of fraud, which has victims around the world, is really unknown. Some European countries have reported that complaints about binary options fraud account for 25 percent of all complaints they receive.

So, where does fraud come in? The perpetrators behind many binary options websites, mainly criminals who are in other countries, are only interested in one thing-taking your money. Complaints about your activities usually fall into one of these categories:

They refuse to pay withdrawals to customers or reimburse them. This is usually done by canceling customer withdrawal orders, ignoring customer calls and emails as well as sometimes freezing their accounts and accusing the customer himself of being a fraud.

Identity theft. Representatives of binary options websites may falsely say that the government requires photocopies of your credit cards, passport, license, electricity, water, phone, or other personal data. This information can potentially be used to steal your identity.

Manipulation of trading software. Some of these online platforms may have reconfigured the algorithms they use to make the customer lose, usually distorting prices and payments. For example, if a customer has a successful transaction, the expiration is extended to become a loss.

Fraudulent websites have no scruples about recruiting investors. They post their platforms-usually on social media, trading websites, chat platforms, and spam spam-with the great promise of easy money, low risk, and great customer care. Potential investors also receive cold calls from the trading room, where sellers put a lot of pressure using bank phone numbers to make as many calls as possible to offer a once-in-a-lifetime opportunity.

What is being done to combat binary options fraud? The FBI currently has a number of cases of fraud with binary options, working with sister institutions such as the CFTC and the Securities and Exchange Commission (SEC). And this past January, the bureau organized the 2017 Europol Binary Options Fraud Summit in the Hague, bringing together regulators from North America and Europe to discuss the growing problem of fraud with binary options.

Special Agent Milan Kosanovich, who works for the criminal division of complex financial crimes, was one of the FBI representatives at this meeting.” The summit, he said, “gave us all the opportunity to sit down and talk about what we discovered with regard to our investigations of binary options fraud, where are the challenges? And how can we all work together?”

One of the biggest obstacles facing the authorities, according to Kosanovich, is the fact that fraudsters are sophisticated and have operations in several countries. “So the key to dealing with this type of fraud,” he continues, “is national and international coordination between regulatory agencies, authorities, and the financial industry.”

Another important factor, Kosanovich said, is that the investor is educated and informed. “Investors need to be informed of the great potential for fraud on a binary options website and need to make sure they do a good investigation before they even place the first transaction or bet.” Source: https://www.fbi.gov/news/stories/binary-options-fraud

Did trading become easier or just riskier? First, this kind of thing can easily become an addiction, especially for market addicts. However, although the amounts you bet may be small, the total can quickly be added up if several bets are placed in one day. It won’t take long to get out of control.

Second, no one, no matter how much knowledge they have, can consistently predict what action or raw material will do in a short period of time. Will EUR/USD or GOLD go up or down in the next 10 minutes? No chance of even guessing that. Binary Options traders simply bet on whether the price of an instrument will be up or down a certain point in a specific period of time.

Third, the house definitely has an advantage. Binary options trading works in a similar way to roulette: if your prediction is incorrect, you lose all the capital you put at risk, but if the prediction is correct, you get your money back plus a profit.

If people want to bet, that’s their choice. But we shouldn’t confuse that with investing. In my personal opinion, binary options are most often a fraud, pure and simple.

Risk and profitability always go hand in hand. It is well known that the higher the profit we expect, the higher the risk traders will take. And on this, we will base this article, on the differences in profitability between Forex and Binary Options to determine which investment has more risk.

What is behind these businesses? What are binary options? What is their operation? Why do you hear so much about binary options in currencies? How are binary options different from Forex? Is there a kinship?

What Are Binary Options?

Binary options are a financial derivative that works on underlying assets such as currencies, or commodities… where the potential gain is fixed because it is determined at the time of the purchase of the investment.

To put it more clearly, binary options create a contract in which you as a trader choose a trend as a forecast of the future price on an asset. This forecast can be in three ways: equal, less, or greater than the price chosen by the trader at the time of the investment.

This price is called the strike price. You as a trader are also obliged to choose a maturity date of the investment, so that when that term ends check if the forecast that was made of the price is successful or not.

This is how you work on binary options, with predictions of asset price trends and with a fixed profit value that is set at the time of the investment and with a maturity date to check the result.

How Do Binary Options Work?

The first way is to bet if when the binary option reaches the end of the maturity date its price will be above or below the exercise price, that is, an upward or downward prediction.

The second way to make predictions is to focus on the trader pointing to a price cap that will be reached at least once before the expiration date. These binary options are called One touch.

The third way to make these predictions. A price range is sought that predicts that the value of the underlying asset will remain when it reaches its maturity date. We call these predictions Boundary or Zone.

There is a denomination to be taken into account with regard to increases or decreases, or price increases and decreases. The options called Call are those that claim to be winners potentially linked to the increases of the underlying asset.

If what we do is to predict in reverse, thinking that the trader’s profit will be determined by a drop in quotation values, then we will call it opinions put.

What Are the Differences Between the Two?

Starting, we must make it clear that a market like Forex moves in spot type, which is a market where all the contracts that are executed to buy and sell are carried out at that time and the investor has to make the payment of the market price which at that time reflects the value of the asset. However, this is not at all what happens in Binary Actions. Binary options are not tied to the market value of the assets, this is an advantage.

In binary investments, there is a lower and more controlled risk by the simple fact that you are not buying an asset and paying a price for it. What you’re doing is investing in a prediction in which you determine the direction the price of that underlying asset is going to take in a given time frame with a maturity date.

Binary shares do not acquire assets, they are contracts in which the trend of such assets is determined. These contracts never influence the quotations on the underlying asset. The binary options market does not suffer the comings and goings of the stock market, because for traders it is like a blackboard on which valuations are scored and on which predictions are made up or down.

When we speak then of binary options on currencies, we are not acting on the value of those currencies or affecting their behavior. What we are doing is assessing whether the price of these currencies will tend to rise or fall in their market. So we call binary shares on currencies because we’re working on that underlying, which in this case is currencies. It is noteworthy that there is a very important distinction between binary options and Forex.

We talk about how we value profit calculation or a failed operation. As we said before, the Forex market is a spot market, so when you buy or sell you will do it at the price that marks the market at that moment.

We will then calculate the profits and losses by subtracting the price we paid at the time of closing the transaction from the price we paid at the opening. This is how we get the number of pips. What we do is multiply the value of the pips by the number of pips obtained and thus we reach the end of the profit or loss of this completed operation.

On the other hand, if we talk now about binary investments, the profit or loss result is measured as a fixed percentage value of the capital you have invested. That percentage amount of profit or loss is constant and you will always know it to make your trade. This difference is fundamental to keep in mind because this marks a very serious gap between Forex and Binary options.

While Forex will keep an eye on how the asset market evolves, with binary options you just have to see if the trend is up or down. We talked before the maturity dates of binary transactions. In Forex this maturity period does not exist because what is intended is that your capital is the longer the better in the asset market. While with binary options everything is clearer and more transparent because there is always a time when you know that your investment will end and you will see the results.

“In addition, binary options move in much shorter periods than Forex. This allows you to better control risks and increase profitability in less time.”

While in Forex you will be working with possible results of 50% positive at most, in binary options the positive net result will always be higher than 70%, depending on the type of option and its maturity date.

In binary options, we are making much more accurate investments, with less risk than Forex, with simpler and faster results so we can make decisions before, and with minimal positive results that usually far exceed the best possible result with Forex. However, to date, many countries have banned investment in binary options. Regulators appeal to the complexity of these financial products and their lack of transparency.

For some time, trading binary options has led to large losses for investors, especially among retailers who had less experience in the markets, and who saw their investment being lost beyond repair. The lack of information and transparency on investment vehicles has led to a high percentage of investors who have already lost all of their investment.

But we think that it is not the product itself that is to blame for this, but rather the lack of preparation of certain investors who do not have enough knowledge and who have treated this investment as a mere game of chance.