Binary options let you trade options on a win-a-bit or lose-all basis and have become massively popular over the years for traders seeking short-term profits. They are legal in the US on regulated exchanges but not in the UK because they were essentially used as a vehicle for criminals based offshore to rob customers through unfair bonus scheme terms and/or just general boiler room tactics.
It was in my opinion one of the FCA’s greatest failings, not regulating binary options sooner. If they had stepped in and regulated binary options in the UK, there would have been some oversight. Instead they stood idly by whilst UK investors were hoodwinked into trading without consumer protection offshore.
It is no secret that in the world of trading and investing, the higher the risk, the higher the return. What is also true is that the shorter the time scale, the higher the risk. Therefore you’d have thought that in the world of binary betting, where you can bet on market moves of 1 minute to 60 minutes the rewards would be high too.
Unfortunately not, the rewards are rubbish.
Do binary traders make money?
Stuart Wheeler the founder of financial spread betting has been quoted as saying that only around 20% of customers make money spread betting. This is true and to be honest probably on the generous side. It’s probably closer to 90% that lose money, 5% probably break even and the rest lose. Binary Betting is even harder to win at because of it’s absolute nature, so expect win rates to be even lower!
You just have to look at the annual and monthly performance from hedge funds in Euro Hedge. The best and highest-paid managers in the world make about 15%, some even consistently lose money. So if customers can’t make money spread betting, and the best fund managers in the world can’t make 100% (like binary betting marketing used to suggest) what chance does a “Mr Smith” have betting bad odds on a short-term market move? Of course, they don’t make money.
Why do people binary bet?
But binary betting existed for a reason. It filled the gap for CFD traders that want a quick fix at beating the market. It’s exciting because the results are quicker than day trading on the FTSE and to a certain extent your loses are limited from the outset.
Just as sports spread betting offered by Spreadex on a horse can lose more than your fixed odds bet at William Hill. The same is true of binary betting, and yes, it is much like betting on a horse race, your losses are fixed and the outcome is about as random as it gets, no matter how good at intra-day technical analysis you are.
So if you want to gamble and don’t want to risk unlimited losses and accept the slim chance of winning it may be for you (if you’re lucky enough not to get scammed by your broker). If you want to make money, stick to the fundamentals and invest for the long run in funds and undervalued companies.
High Risk, Low Return
Despite what the adverts told you, the returns on binary betting are actually very low compared to leveraged trading. With CFD trading or financial spread betting, you deposit initial margin, and your profit or loss is potentially unlimited.
However, with binary betting, you only get long odds if a probability is highly unlikely. Obviously, events with a low likelihood rarely happen and as such when you bet on binary events you get a very low return based on the risk.
Binary Options are NOT investing
As binary options are not regulated in the UK for retail traders, there is no oversight on how they can be marketed.
Binary betting is a high risk short term bet or speculation.
Investing is based on sound fundamental growth prospects, which are not applicable to binary options.
Are there any good binary betting brokers?
If you must binary bet, you must have a full understanding of the risks and only do so if you have a professional trading account. If you are going to trade binary options, you should certainly go with a UK-based and regulated broker that offers pro accounts.
Don’t go near anyone regulated offshore or get drawn in by marketing that suggests you can double your money.
Richard is the founder of the Good Money Guide (formerly Good Broker Guide), one of the original investment comparison sites established in 2015. With a career spanning two decades as a broker, he brings extensive expertise and knowledge to the financial landscape.
Having worked as a broker at Investors Intelligence and a multi-asset derivatives broker at MF Global (Man Financial), Richard has acquired substantial experience in the industry. His career began as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson), following internships on the NYMEX oil trading floor in New York and London IPE in 2001 and 2000.
Richard’s contributions and expertise have been recognized by respected publications such as The Sunday Times, BusinessInsider, Yahoo Finance, BusinessNews.org.uk, Master Investor, Wealth Briefing, iNews, and The FT, among many others.
Under Richard’s leadership, the Good Money Guide has evolved into a valuable destination for comprehensive information and expert guidance, specialising in trading, investment, and currency exchange. His commitment to delivering high-quality insights has solidified the Good Money Guide’s standing as a well-respected resource for both customers and industry colleagues.
You can contact Richard at richard@goodmoneyguide.com
