Binary Options: A Trading Tool That Must Be Fully Understood

What is Binary Options and How Does It Differ from Gambling

In the online trading industry, binary options are gaining increasing attention, especially among investors seeking new ways to generate income through financial markets. Binary options are a type of derivative instrument with a special characteristic - traders must predict whether the price of the underlying asset will rise or fall by the expiration time.

But the most important thing is to distinguish whether this activity is considered gambling or a genuine investment. The answer depends on your own approach. If you make random predictions without a plan or proper money management, it could be considered gambling. However, if you use analytical data, have a clear strategy, and maintain discipline in risk management, it is regarded as a principled investment.

Structure and Operating Mechanism

Main components of binary options:

How do binary options work? Traders need to allocate an amount of ( for example, $100 ) and decide whether to choose a Call Option ( predicting that the price will go up ) or a Put Option ( predicting that the price will go down ). The expiration period can be very short, from 1 minute to 15 minutes.

When the time ends, if the prediction is correct, you will receive a fixed payout, usually 70-85% of the invested amount. If the prediction is wrong, you lose the entire amount wagered. This structure makes the outcome straightforward - either a win or a loss.

Example of real trading:

Suppose the GBPUSD price is at 1.3902, and you decide to invest $100 to predict that the price will go up within 5 minutes. If your prediction is correct and the price closes above 1.3902, you will receive $185 ( principal of $100 plus an $85 return ). But if the price closes lower, you lose the entire $100.

Legal Status of Binary Options

In Thailand

Thailand currently does not have specific laws that recognize or prohibit binary options trading. This means investors must verify on their own, and they are not protected by Thai institutions. If issues arise with foreign brokers, seeking assistance from local authorities will be difficult.

Bans in other countries

The global situation regarding binary options is not always positive:

• Australia: ASIC announced a ban on retail investors trading binary options from May 2021 because only 20% of retail investors could profit from this tool.
• European Union: ESMA issued a regulation banning the marketing and sale of binary options to consumers in March 2018.
• United States: The FBI found that most binary options trading websites are scams and do not recommend investing.
• Other countries: Belgium, Canada, Israel, and Germany have similar bans.

Comparing Binary Options and Forex

Similarities:

• Both are financial instruments that can be traded online.
• Allow starting with small capital.
• Can profit from both rising and falling prices.
• Both can generate high returns if predictions are correct.

Key differences:

1. Trading duration

• Forex: Positions can be held from seconds to months, with a 24/5 market.
• Binary options: Have a fixed lifespan of 1-15 minutes, automatically closing at the set time.

2. Risk and profit

• Forex: Risk and returns depend on actual price movements. Leverage can be used, with returns up to 200% or more, but losses are unlimited.
• Binary options: Returns are predetermined ( approximately 70-85% of the invested amount ). Maximum loss is the amount wagered.

3. Profitability complexity

• Forex: Traders do not need a high win rate but can set take-profit and stop-loss points themselves.
• Binary options: Require a win rate of at least 80% to be profitable in the long run.

Choosing the Right Tool

Choose binary options if you:

• Want clear, measurable risk.
• Prefer short-term trading for results within minutes.
• Have high accuracy in predicting price directions.

Choose Forex if you:

• Seek higher potential returns.
• Can manage unlimited risks.
• Have time to monitor and adjust positions.
• Want flexibility in managing your trades.

Warnings for both methods:

Derivative instruments like binary options and Forex are high-risk investments. Traders may lose all invested capital. It is crucial to study thoroughly, practice with demo accounts, set loss limits, and never invest money you cannot afford to lose.