Binary options are a hot topic at the moment, people search information online, read non-factual feedback and get scared away, we have therefore decided to come up with an article to clarify the difference between trading and gambling, as there is one.
In different countries regulators do not know whether to classify binary options as a financial instrument or gambling. This statement shows a shallow understanding of binary options as well as financial instruments and due to this fact we had to leave a number of countries lately, among them are Canada, Australia and Belgium as the latest. From today, that is August 18th, we have stopped providing services to both old and new customers from this country.
Gambling or financial instrument?
According to the Merriam-Webster dictionary, gambling is defined as “to bet on an uncertain outcome”. Isn’t trading any financial instrument according to this definition gambling? Well, it is if you are just looking at the outcome of one individual trade in isolation. If on the other hand, you are trading a system that has a positive expectancy then the outcome may not be so uncertain.
The risk will always be there and the higher the payouts the riskier the investment is. With binary options, the risk are always known in advance. You will never lose more than what you’ve invested in one position and with IQ Option the payout is always known in advance.
This is actually similar to bank deposits, you invest a certain amount of money, you may be protected up to a certain sum depending on your government, and the bank offers you a fixed annual percentage. However, with banks since the risk is relatively low so is the payout on those savings accounts. In most cases the payout doesn’t even cover inflation.
When you trade binary options, it is important to ask yourself:
- What am I trading? If there is no system that can be developed that has a positive expectancy, then you are gambling and what you are “trading” is not a viable financial instrument.
- How am I trading? If you trade any financial instrument without a strategy that has a positive expectancy, then you are gambling.
Let us take a look at a few examples to see whether you are gambling or trading.
- Playing the slot machines in a casino. This is clearly gambling as the odds are in the favor of the slot machines over time. If you play long enough you will always lose. The casino always wins.
- Trading options with a system that has a positive expectancy. This is clearly trading and not gambling as you can make money over time even though the outcome of any one trade is unknown.
- Trading assets without a system that has a positive expectancy. This is clearly gambling, as it is uncertain whether you will make money over time. So in this example, you can see that even though you are “trading” a financial instrument, what you are doing is still considered gambling.
Some analysis can make a difference
To sum up, if there does not exist a system of trading that has a positive expectancy, then you are gambling and what you are trading is not a financial instrument. Why? Because trading binary options includes risk management and both technical (indicators) and historical (news) analysis. Trading requires a lot of concentration and feeling of responsibility for the actions you take as there will be positive or negative consequences and you are solely responsible for them.
Develop your trading system, build a strategy by training and learning, enhance your approach with analysis and don’t forget to address our support in case you need information on how to access tools and educational material.To the platform
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.
GENERAL RISK WARNING
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
76% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.