What is binary trading: an investment tool or gambling

Binary trading has become one of the financial tools that attracted investor interest over the past year. Many people wonder whether this product is truly an investment or just a form of gambling. In this article, we will clarify this confusion and provide comprehensive knowledge about binary trading, along with comparisons to other investment tools.

How Binary Trading Works

Binary trading refers to a derivative product with unique characteristics, where returns depend on the movement of the underlying asset’s price. Investors must predict whether the price will rise or fall within a specified period.

A key feature of binary trading is the simplicity of outcome determination and risk. Investors can clearly know their expected profit: if their prediction is correct, they earn a return of 70-85% of the invested amount; if wrong, they lose the entire investment.

The expiration time for binary trades is very short, ranging from 1 minute, 5 minutes, up to 15 minutes. It operates on the principle of “clear win or lose,” meaning traders have no room to adjust their plans.

Two Types of Binary Trading: Call and Put

Binary trading allows investors to choose the direction of price movement in two ways:

Call Option: This position reflects an expectation that the underlying asset’s price will go up. For example, if a trader believes that GBP/USD at 1.3902 will rise in the next 5 minutes, they open a Call Option with $100. If correct, they receive $185 (including the principal and $85 profit). If wrong, they lose the entire $100.

Put Option: Conversely, this position is opened when expecting the price to decrease. Traders profit when the price moves in the predicted direction.

Binary Trading: Investment or Gambling?

The debate over whether binary trading is an investment or gambling has both perspectives, depending on individual trading methods.

If an investor trades randomly without a plan, without money management, and makes decisions based on emotions, greed, and fear, it can be considered pure gambling.

However, if an investor employs clear strategies, market analysis, risk management, and calculates risk/reward ratios, it can be regarded as a systematic investment approach. Success in binary trading requires winning at least 80% of trades to achieve a positive overall result.

Binary Trading vs Forex: Similarities and Differences

Both binary trading and Forex are popular financial instruments in the market. They share similarities such as online trading with small capital requirements and the ability to profit from both rising and falling markets.

However, the differences are significant:

Trading Duration and Accessibility: Forex markets operate 24 hours a day, 5 days a week, while binary trading depends on the opening and closing times of the underlying assets.

Instrument Duration: Binary trades are very short-term (1-15 minutes) and cannot be adjusted once placed, whereas Forex positions can be held from seconds to several months.

Profit Potential: Forex offers higher profit potential (200% or more) due to leverage, while binary trading typically limits returns to 50-80% of the investment.

Risk and Volatility: Forex carries higher risk but offers more flexibility in risk management. Binary trading risks are predetermined from the start.

Legal Status of Binary Trading Worldwide

In Thailand, there are no specific laws regulating binary trading. Investors bear the risk of intermediaries themselves, and if issues arise with foreign brokers, claiming rights can be difficult.

Internationally, many countries have banned or restricted binary trading, such as:

• Australia: ASIC banned retail investors from binary trading since 2021 due to only 20% profitability among traders.
• USA: FBI reports that most binary trading websites are scams.
• European Union: ESMA has prohibited marketing and selling binary options to retail investors since 2018.
• Germany: BaFin plans to ban advertising and sales to retail investors.
• Israel: Banned all binary trading, considering it gambling rather than investment.

Main concerns among these authorities include high risk, fraud, and low success rates among retail traders.

Recommendations for Choosing Trading Instruments

For those deciding which tool to trade, consider the following:

Choose binary trading if you want a tool with clear risk and straightforward planning, but be prepared to win frequently (at least 80%) to make a profit, with limited returns.

Choose Forex if you are willing to accept higher risk, desire more flexibility in risk management, and aim for larger profit potential. You don’t need to win as often; with good risk control, even a 40-50% win rate can be profitable overall.

Ultimately, binary trading has its own characteristics, advantages, and limitations. The choice of tool depends on your trading style, risk tolerance, and financial goals.