2016 and 2017 are definitely the year of Binary Options Trading. Since 2016, when you google for options trading, the top results that turned up are going to be "Binary Options Brokers".
In fact, Binary Options Brokers deployed the very best internet marketing strategies to quickly saturate potential investors and traders with messages of how common folks are becoming millionaires within extremely short periods of time and even making millions within weeks or months through Binary Options Trading and that has indeed captured alot of attention. That is also why you are reading this today, aren't you?
However, after reading all these fantastic stories about binary options millionaires, you must be wondering "Can you really get rich trading binary options"? and that's why you are here today reading this, right? In this article, I shall explore the odds of a Binary Options Trader really making consistent money or lots of money and explore also why its so hard to get rich trading binary options. This is not an article talking about the legitimacy of binary options or whether they are scams or not, real options trading or not. Just one which helps you decide if you could really make money from binary options trading. (Learn about what Binary Options is)
First, let us look at an infographic summarising why it is so hard to get rich trading Binary Options:
Note: Please feel free to share the above infographic on your website or blog to warn more people. Be sure to link back to our page!
First of all, what is the actual number of people who actually became rich through Binary Options trading? Well, according to a recent survey, the chances of getting rich through binary options trading seem a little bleak. The report surveys a number of binary options traders to find out how many of them eventually get to withdraw more cash from their account then they deposited in their binary options trading accounts and the result was staggering. There was about only one out of almost a thousand binary options traders who managed to result in withdrawing from their account more money than they put in initially, i.e profitably. About 80% of surveyees made some initial wins before losing it all within their first few hours (not lasting even 1 day). The rest usually lose all their money over a longer period of time, or managed to actually make some significant profit and then lose it all later on before they get a chance to withdraw their profits. Finally, there is that one in a thousand who manage to end up withdrawing from their account profitably.
Are you feeling lucky? Are you typically the "one in a thousand" kind of person?
Yes, we are not saying that binary options trading is outright illegit or what but that the chances of winning or getting rich trading binary options is so low that lottery tickets sound like safer alternatives. Statistically, the chances of emerging an eventual winner from this game of Binary Options Trading is extremely low, which is why running "Binary Options Brokerages" are so profitable and why there has been a sudden surgence of so many binary options brokers in the years of 2016 and 2017. But, why is it so so hard to get rich trading binary options? Let us now explore some of these difficulties.
One of the most publicised characteristics of Binary Options is their fixed payout. The latest most popular payout seems to be paying you 70% of your bet when you win while "returning" you 15% of your bet money if you lose. This means that when you win, you win 70% but when you lose, you lose 85%. First of all, taking away the complexities of how much skill you can apply into Binary Options Trading in order to increase your chances of winning, lets just look at the simple "Binary Probability", which is what "Binary" in binary options mean.
Binary means having two possible outcomes, win when the price cross a certain price or lose when it doesn't, making the binary probability 50/50, having an equal and fair chance of ending in either outcome. That leads to a very interesting situation, which is, winning 70%, 50% of the time and then losing 85%, 50% of the time, already tells you that your net outcome in such a setup is a glaring (0.7 x 0.5) x (-0.85 x 0.5) = 0.35 - 0.425 = -0.075. This is a deliberate losing setup which demands that you be able to consistently have a 55% and above winnning rate to make any money at all. That alone is a very tall call as the ability to consistently produce above 55% winnning rate is a challenge even for seasoned professional options traders. Most professional options traders or futures traders make a long term profit not from being able to consistently produce a higher winning rate but to be able to produce much higher returns on their wins than on their losses so that even in a 50/50 scenario, profit can be made. This can only be done through instruments that does not put a limit on your maximum return, such as real options or futures or even stocks. The fact that maximum profit is fixed in binary options trading and that you always stand to make a higher loss than profit already start every binary options traders off on a losing start, making a very tough game of winning through predicting future price action, even harder. Which brings us to the next reason why its so hard to get rich trading binary options...
It is a well established fact in finance that the longer the investment timeframe, the higher the chances of a profitable outcome. In fact, an investment timeframe of about 20 to 25 years is almost guaranteed to turn out profitable. The probability of a profitable outcome decays linearly as the timeframe of an investment decreases. In my experience, I can predict long term, 1 to 3 years, price action up to an accuracy of over 90%, while my accuracy for mid term swing trading price action of 1 to 3 months decays to about 70% while short term trading to intraday trading decays to a random 50% accuracy. So, what is the common timeframe in binary options trading? A mere 60 seconds in most cases! How accurate can one get in that kind of timeframe? The timeframe along with the payout system is the perfect formula for a losing scenario but has so cleverly been marketed by binary options brokers to be conditions in which people are winning 70% of their money as quickly as 60 seconds! Talk about being able to reframe a completely negative situation into a positive one! This is another very important reason why it is so hard to get rich trading binary options. Why is it harder to profit as timeframe decreases?
The main reasons why it becomes harder to profit when timeframe decreases is that firstly, entry and exit points need to be increasingly accurate in order to profit as timeframe decreases. This means that if you are investing for the long term, you can put on a position and then wait for prices to eventually move in your favor. That can happen as slowly as a few months later and you could still be profitable. However, as timeframe decreases, you would have to be able to spot entry points that are increasingly accurate in order to make a profit. If you are investing for a week, then you need to spot an entry point where the price should move in your favor within the next few days. Now, imagine if you are investing for just 60 seconds... you need to be able to enter a position and have it immediately move in your favor! How accurate an analyst do you need to be in order to do that? Which leads us to the next point...
You simply won't have the time to perform any comprehensive analysis at all in the first place! Yes, if you are investing in a binary option that is going to expire in 60 seconds, you need to be able to make a split second entry decisions very often without any form of technical nor fundamental analysis! Yes, real investment professionals take time to completely analyse an investment in order to arrive at an educated decision whether or not to commit capital to it. This process of analysing an investment makes the difference between investing and gambling. Investing is committing capital to a well informed and well researched opportunity while gambling is just jumping in without any such research, hoping things work out as one wishes. Now, what if you researched the underlying beforehand?
Now, the next problem with an extremely short timeframe that makes getting rich on binary options very difficult is that even if you did any form of research or technical analysis, there will always be minute to minute swings! No matter how bullish an outlook the price of an underlying is based on technical analysis, there will always be numerous minute to minute price swings that completely contradicts that outlook. So, you might buy a binary call option because the underlying price action is determined to be bullish for the day based on technical analysis, you might still be losing if that minute is a pullback and it don't even have to pullback very far, it only need to be below, no matter how little, the strike price of the binary call option for you to end up losing.
See how by combining the payout system and the extremely short timeframe, binary options brokers have already stacked all the odds of winning in their own favor? Well, even with such designs in place, there might still be those one in a thousand who could consistently predict such extremely short term price actions... this is when binary options brokers go into outright fraudulent techniques to beat these winnners.
As if profiting from Binary Options isn't already difficult enough, binary options brokers sometimes commit outright frauds in order to stop you from pocketing any money at all. Binary options brokers could do that basically because most of them are not real legally regulated brokers in the first place. With no regulators governing what they do and how they do it, binary options brokers could do almost anything to win. Based on complains received by the US Commodity Futures Trading Commission, CTFC (Read the full report by CTFC), frauds committed by binary options brokers range from manipulation of options expiration timer to manipulation of trading robots to outright not paying you when you attempt to withdraw money from your account! Yes, as if designing the game completely in the favor of these binary options brokers isn't enough, these fraudulent techniques makes it almost next to impossible to get rich trading binary options.
Manipulation of the options expiration timer involves secretly extending or reducing the expiration timer by a few unnoticable seconnds so that a winning price that is too close to the strike price could be turned into a losing one by expiring the binary option the moment it makes a quick dip below the strike price. This is how alot of binary options traders experience the frustration of watching a winning trade expire only to see that it is posted as a Lose when its updated.
A lot of binary options traders actually depend on trading robots to automate their trades rather than trade for themselves. However, such binary options traders usually experience the terror of the robot making a huge string of losses which all but wipes out their account within minutes before it gets back on its usually "winning rate". Before you think its bad luck, many of such instances are actually fraudulently manipulated to be so. This is why there has not yet any real accounts of any binary options traders being able to make binary options trading into an automatic money generation machine through the use of binary options trading robots to date (apart from marketers who are marketing such robots).
As if doing all of that isn't enough,that despite all of these difficulties, you managed to make some money, there has been reports of binary options brokers simply not paying binary options traders when they make their withdrawal from their binary options accounts. This is done primarily in two ways; one, you receive a call from the binary options broker the moment you hit that withdrawal button, promising extra "free" credits if you continue to keep the money in your account and two they simply never make the transfer. Alot of binary options traders who take up their offer of the "free" credits and keep the money in the account very soon find themselves running out of luck and losing it all to the binary options broker eventually. In respectable financial term, we call that "Reinvestment Risk". And reinvestment risk on such extremely low probability of winning is extremely risky indeed.
Even though it is statistically possible that some people get rich trading binary options, I have yet to meet one such person in real life nor have the honor of interviewing one. The game of Binary Options Trading has been rigged right from the start to put the odds of winning in favor of the binary options broker simply through the payout and timeframe itself. As if that isn't enough, fraudulent techniques employed by some binary options brokers made it all but impossible to get rich trading binary options. But of course, you could be that one of a thousand... are you? So, I kept comparing binary options with real options trading here, what exactly is the difference? Read Differences Between Binary Options Trading and Real Options Trading. On top of that, this is actually the most dangerous time to be opening a binary options trading account and trading binary options! Read about Why This Is The Most Dangerous Time For Binary Options Trading.