Some investors believe binary options belong more in a casino than the stock market. So let’s take a look, and you can decide whether this is a stock investment or a game of chance.
What Are Binary Options?
Unlike traditional investing, with binary options, you either win the maximum profit or lose the maximum. The term of this investment ranges from 30 seconds to one month, and you must choose if the stock finishes up or down at the given expiry. Sounds like gambling. But binary options involve more than luck, you need to learn the skill and strategy involved to see success.
What Is Gambling?
Gambling is a game of chance, played for money, like roulette, slot machines, or betting on the outcome of an athletic contest. You take a monetary risk on an uncertain outcome. Unlike binary options, the expectation of gambling is usually a negative outcome. Most people lose more than they win.
The Main Difference
Binary options require a learned skill, knowledge, and fundamental analysis. Traders know the basic chart patterns and indicator tools of stocks. Chart analysis helps you see the market and predict future movements in prices. Once you see the pattern, you gain the edge and increase your financial profit. While there is a risk, learning strategies is fundamental to investing with binary options. Gambling is more about pure luck.
How to Invest
Binary options begin with a bid on the asset (stock). The maximum bid is $100, although you can bid multiple times for a larger return. Look at the asset price and where the index sits. If the price per asset is $70 and the index is at $4,000, you decide whether the index will rise or fall then buy a contract for $70. For this example, the expiry is one hour. At the end of the hour, if the index is where you thought, you win.
This type of trading is quick and simple, but you need a good knowledge of the stock market. Many factors influence the market and you must research the assets that interest you before you place any bids. That research is what separates binary options from gambling.
You can see why some consider binary options as gambling. It is a short-term investment with only two options, win or lose, while traditional trading involves varying amounts of money with wins and losses over a longer time span. Some think binary options resemble playing poker but with a lot less human interaction. Poker needs some skill, some luck, and other players. That human factor adds more risk putting poker in the gambling category and binary options with stock market trading.
Binary options involve bids or wagers like gambling. But after all, any stock trade involves an opinion about a future event and placing money on that opinion with a possibility of profit or loss. So, by that definition, any stock trade is gambling. Don’t worry what the definition is; by investing your time in studying the stocks and binary options, it can become a good short-term investment.