Beware of Binary Options (BO) Trading!


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

Online Investment – Binary Options


 

Binary Options (BO) trading is probably the furthest from Value Investing (VI), when it comes to investment fundamentals. While in VI we focus on the business behind the symbol, A BO trader is almost completely concerned with current price movements. Some BO platforms offer options with a 15-minute life span!

BO is a relatively new version of day trading. Most BO transactions finish within an hour. Recently, some platforms started giving the trader the option to choose longer expiration periods.

The basic concept behind BO trading is to “predict” if the “asset’s” price is going to move up or down relative to the entry price.

Here’s an example: Let’s assume the trader is interested in crude oil’s price movements. The trading platform offers crude as one of the available BO assets. The trader needs to have some funds in his or her account in order to trade. The minimum amount per BO trade varies from one platform to another. Usually between $10 and $50.

Let’s say the platform in this example requires $30 to trade one BO asset. The trader selects crude, enters the minimum trading value, which is $30, then he or she has to decide, or “predict”, whether crude price will go up or down from the current price, say at the top of the hour.

From looking at the charts; trying to forecast price movement trends, reading the latest news, and using his/her best judgement and “gut feeling”, the trader decides to choose the “UP” option. Once he hits “Buy” or “Submit”, the platform registers the price at which the trader “entered” the trade. Let’s say the price was $91.5 per barrel, and the entry time was 10:15 AM.

The trader can either wait, or look for other trades, if he or she still has funds in his/her trading account (because the $30 for the crude trade has already been deducted from the available trading balance).

Now let’s fast forward to 11:00 AM. It’s the time when the BO trade expires. If the price was above 91.5, say 91.51, or more, then the transaction is said to be “In the Money”, and the trader would gain a percentage on top of the original $30. That percentage ranges between 70% and 85%. Let’s use 80%. This means: 30 *1.8 = $54, would be returned to the trader’s BO account balance, with a net profit of $24.

On the other hand, if the price was below the entry price at the expiration (11:00 AM in our example), say 91.49, or less, the transaction is said to be “Out of the Money”. The trader would lose the trading deposit ($30), but some platforms return between 5% to 15% to the account balance. If the trader had started with a balance of $100, he or she would end up with $74.5 (assuming the returned percentage was 15%).

In rare cases, the transaction expires “At the Money”, which is exactly $91.5. In that case, the trader gets back the $30, without any gain or loss.

From the above example, we can see why this kind of short-term investment is called binary. Because it has only two possible outcomes at the expiry of the trading transaction.

BO trading is stressful. Although the potential of making huge returns rapidly is obviously there, so many traders lose all their capital, especially when they get emotional, and try to retaliate, by investing even more to recover their loses.

There is also a factor of luck, and another of speculation here. That’s why experienced traders enter several transactions simultaneously, with the hope that more than half of the trades would end in the money.

Another aspect of BO trading is its heavy reliance on technical analysis. If you lack that skill, the process becomes closer to gambling than trading.

Most, if not all, BO platforms require a minimum deposit of $100, or more, just to start trading (this is different from the amount required per trade). They also run strict verification procedures, before a trader can withdraw any profits, especially if the platform was regulated.

Before engaging in this risky investment, you should research the provider (the BO platform) extensively. Read the FAQ. Evaluate your technical analysis capability, and only use money which you’re prepared to lose! Never use your milk or bread money…

I strongly suggest that if you’re a novice trader, you should steer away from BO trading.

All the best,

The Wealth Maker

Making Money Online – Investment


Value-Investment is the main theme of this blog, especially the first half of the articles. But today I’m going to address the topic of investing as it pertains to the online landscape.

The simplest definition of investment is growing financial assets (the term is broad enough to cover other kinds of investment, like investing in one’s health, family, society, but our topic here is concerned with financial investment only).

Think of it as farming: You implant a good seed, in fertile soil, wait for a certain period of time, while watering, fertilizing and weeding, then you end up with some kind of vegetable or fruit. The seed is a metaphor for the initial capital or “principal” allocated for investment. The fertile soil is the investment instrument or “program”, the period of waiting is the investment term. And finally, watering, weeding and fertilizing represent your follow-up and tracking of your investment, to make sure it’s growing, not shrinking! And of course, the fruit is your profit…

The web has revolutionized many aspects of our lives, including our finances. One of those areas is online investment. Nowadays, you may engage in several investments, from the comfort of your home.

Traditionally, people would invest in businesses directly, or through stock markets. Another type of common investment has been in precious metals, such as silver and gold.

You can still do that and more online. Following are some examples:

  • Investment in silver and/or gold
  • Investment in energy and resources (crude, gas, solar, green, water, forests, etc)
  • Investment in online businesses
  • Investment in off-line businesses via online instruments
  • Investment in advertisement programs
  • Investment in High Yield Programs (HYIP)
  • Investment in stocks
  • Investment in Forex (Foreign Exchange)
  • Investment in commodities (coffee, corn, cotton, copper, etc)
  • Investment in real estate
  • Investment in web space, or buying and selling domain names
  • investment in Binary Options and Futures
  • Investment in online traffic

I’ll give a brief description of most of the above opportunities starting from the next post.

All the Best

The Wealth Maker