Despite its newness, BO trading has almost gone mainstream. The promise of fast and easy attainment of riches fuels its overwhelming proliferation.
People with no experience whatsoever embark on this adventure. After all, opening an account takes seconds. Placing a trade is swift and instant, and so is losing money!
The business model of the so-called binary options brokers (many of them are regulated by gambling authorities, if at all) is an old-fashion scheme, where the winners take part of the losers’ money, and the house keeps the rest. Does that remind you of any other business model?!
New brokers are popping up everywhere. The only region that doesn’t welcome them as much is North America. None of them is recognized or regulated by financial authorities in either Canada or The US.
The platforms, the graphs, the glamour, and even the so-called “rules” play on the psychology of the users, who soon become losers of hard-earned funds.
What is the split? Probably one winner in every 100 or more members. So let’s run a quick calculation. The winner is so good, he/she nets $1000 a day. The losers, on the other hand, give up an average of 50/member. Total loss: 50 *100 = 5000. The winner gets a grand, and the house keeps four; not bad at all! Keep in mind that this example assumes a very low-end of the game. Usually, the split is one winner out of at least 500. And the losers let go of more than 50 a piece.
Is that business, investment, or even trading?
No. It is not, by any measure. It’s a new form of online gambling. People talk about using technical analysis to “predict” the closing price of an asset, when the trade expires. What’s that called? Betting, right. Fighting the odds, with eyes less than half-oppened.
Financial markets are unpredictable on the long-term, let alone for minutes and/or seconds. A price graph may decide to have a “hiccup” right before expiry, costing you all the money you’ve put on that price closing higher (or lower) than the entry point. The reason could be a piece of news, High Frequency Trading (HFT), or any other unpredictable event that may have taken place momentarily, causing a trend to change direction, wiping out your “investment.”
Is that fair? Well, first, no one forces you to do it. And second, which is more important, this is an emotional rollercoaster. Very few people can maintain their composure in the face of such rapid changes. Those are the few winners, exactly as in poker, or any other money game.
Money is a vehicle to exchange real value. Playing with it isn’t healthy, both for the individual and the economy.
Please notice that nothing is being exchanged, not even futures (for example, commodities or stocks). The whole deal is about prediction and speculation. The “trader” buys the “right” to put money on a probability, which is affected by factors that are entirely outside the reach and control of the trader. Can you buy and sell probabilities? You can utilize statistical data to make an informed investment decision. Here, that piece of information has become the asset!
We need to know the traps so we wouldn’t step on them.
Go back to the articles on this blog, or any other source you trust. Gain the knowledge of real investment, real work. Know your options, and never commit money to buying fish in the ocean!
The Wealth Maker