Binary Options Scam
It has come to my attention that many inquire about the binary options scam. Are there any binary options that are legit? What are binary options and are there risks associated with them? Can you make money with them? I'll explore all of this in this article.
What Are Binary Options?
A binary option is a contract that pays a predetermined amount of money if it falls in-the-money at the time of expiration. It's an all or nothing proposition. Contrast this with a standard option which can still have some value all the way up to expiration.
There are two types of binary options: cash value and asset value. Cash value refers to an option that is based on a predetermined value whereas an asset value is one that is determined by the underlying asset.
Note: this is not meant to be a tutorial on how options work. That would bloat this article beyond compare. The assumption is you are already familiar with the concepts. For a more detailed coverage of options in general and binary options specifically, see the following:
Risks Associated with Binary Options
The appeal of these types of options is that you are making very small bets (and that is really what they are) in hopes for quick profits. Sometimes the best are for 5 minute intervals, i.e., you get paid if XYZ stock moves up to a predetermine price within a five minute period.
This is all well and good if you are right about those bets but statistics have shown that you are only going to be right about 55% and that is considered the point of breakeven (because you lose 45% of the time). For more on this, see Forbes, Don't Game on Binary Options
It should be noted that I have successfully traded using regular options contracts in the past. But I am an experienced investor with extensive knowledge in the subject. I tell you this because I don't hold standard options in the same negative light as I do binary options. With standard options, the contracts can have value all the way up to expiration. That doesn't make them risk free however. Please understand your risks before trading any instrument.
Is Anyone Making Money from Binary Options?
There are people that have made money trading binary options. It's usually the sellers of these options. Although there are a few who claim to have made money on the buy side, their luck usually runs out as they get seduced by the gains. It's just like going to Vegas. A few people win but usually end up breaking even, or worse losing money.
As the Forbes article above stated, binary options is an unregulated market meaning that you are on your own if there are any unethical dealings that you may encounter. And there are plenty of scammers who will be happy to let you part with your hard earned cash. If you decide even after reading this article that you still want to delve into this type of instrument, make sure you know which websites to deal from and which to say away from. You can get more information about that from:
An Option is a Wasting Asset
Unlike buying a stock and holding it forever (who does that anymore?) option contracts have an expiration date. In the case of binary options it can be an expiration hour. But this means that the contract wastes away to 0 value if it does not go in the money. You must be aware of the fact if you trade options.
When you buy and hold a stock and the price of the stock falls, you can wait for as long as you want for the price to hopefully recover and then move onto profitability. And remember that there are a fair amount of stocks that pay dividends so that could help recover from any declines in prices. Options don't typically pay dividends because there is no ownership.
Too Much Opportunity for Fraud
The SEC has issued a fraud warning surrounding binary options. For more information, see:
I believe with all that can go wrong with binary options, people should seriously consider avoiding them. This is especially true since there are some many other legitimate ways that people can make money online. For one of the best ways to get up and running with a business with true potential, read my review of the world's premier affiliate teaching program.
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