Why Binary Options Are Scams And You Are Broke After 50 Trades
Binary options are scams and if you do not keep your hands off, you will not reach your financial goals.
As simple as that.
But since you certainly want to know more about why binary options are scams and definitely not good for you, I break up the topic in a good home-style-finance-style and pick it up for you.
In addition, I’ll show you why your trading capital is almost completely lost after only 50 trades. With bill, graphics and everything that goes with it.
- Are binary options good or bad?
- Binary options and psychology
- The expected value of binary options
- A bet with a company in Cyprus
- How bloggers favor binary options fraud
- Binary options and martingales
- Are binary options gambling?
- Conclusion: Why binary options are fraud
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Are binary options good or bad?
Short answer: Bad.
Long answer: First of all, a binary option is neither good nor bad, but only a binary option.
No more and no less.
Nobody forces you to act or deal with it. It’s just a financial product on the market. Quasi an offer. You can use it or not.
However, binary options are very different from other constructs because they are a derivative with very high leverage.
This amplifies the smallest price movements that you would otherwise perhaps not perceive.
A binary option is neither good nor bad, but just an idea. Because of its construction, it can lead to rapid gains (or losses), which appeals to greed in people who may not be in the finance theme.
Of course that’s bad but not the fault of the option. These greed, however, shamelessly exploit some brokers to offer this unsuitable and leveraged product to the end user.
Mostly under the boldest lure of quick profit. And so the greedy together with the shameless and moving money with horrendous transaction costs (more on that later) from A to B.
Added value for society? None.
At this point, in my opinion, a neutral idea becomes something bad.
If you want a return, you have to add value to someone else. Then and only then can you expect to make a profit yourself in the long run.
Summary of the Long Answer: Binary options are bad.
Binary options and psychology
As already indicated above, human emotions play a major role here. As always, when something should be sold.
In that case, it’s greed. The potential trader of binary options (= gamblers) hopes for quick money and financial independence. Of course with just sitting around in front of the laptop and stupid clicks.
And that’s what advertising for binary options is all about. In no time at all, Max M. achieved everything with nothing and no prior knowledge of binary options.
1 million euros with one euro bet in just one week (= gambling).
If you really believe that, do not be surprised if the money is gone faster after the deposit than you can count to three.
Of course, wealth accumulation and financial independence are possible, but in no case without a lot of work before.
Anyone who promises you anything else does not like you and will most likely try to pull you off in one way or another.
Greed has lost nothing in your life. She is a really bad adviser at the investment.
The expected value of binary options
Ok, enough palavert. Time to dive a bit into the numbers and figure out the value or benefit of a binary option for us.
I have selected a common offer:
A 60-second option on WTI grade petroleum.
If the price of oil rises in the next minute, we win back 85% of our stake plus our stake.
If the price of oil falls, the stake is completely lost.
I have picked out the three most important scientific papers from the HUGE mountain of existing literature on the behavior of prices on stock exchanges, which show that in the short term the prices have a 50-50 chance to rise or fall.
That’s what science says
Random Walks in Stock Market Prices – Eugene Fama (1995) in the Financial Analyst Journal
Forecasts of future prices, unbiased markets, and martingale models – Benoit Mandelbrot (1966) in the Journal of Business
Efficient capital markets: A review of theory and empirical work – Malkiel and Fama (1969) in the Journal of Finance
The prices on the stock exchanges are therefore proven to move up or down by accident for very short periods of time.
With this information, we can determine the expected value of an option, that is, the actual mathematical value for us:
0.50 * 0.85 – 0.50 * 1 = -0.075
In other words, for every euro you bet, you’ll get back on average € 0.925. Or – put differently again – you lose 7.5% of your bet per trade in the long run.
That’s what I call a shitty deal!
To illustrate this, I have graphically illustrated you how a theoretical starting balance of € 1,000 with each additional bet develops. We do not shoot any fresh money here and always have our entire balance in play.
After just 50 bets, we only have $ 20 left over from our original $ 1,000.
For heaven’s sake!
If each of these bets was a 60-second bet, then in just 50 minutes we racked up 980 euros in binary options .
What a scam!
So binary options have a negative expectation and no one who seriously invests to achieve something would even touch that with a pair of pliers.
Of course, the development of your deposit / betting deposit from the above example does not perfectly follow the expected value in reality. Of course, due to simple coincidence, you can sometimes make a profit in between.
To illustrate, I have developed a simple but accurate simulation for the example above and run it ten times. We assume that our trading capital is divided into ten equal and simultaneously played single bets, and each time we receive a game with the expected value calculated above.
In the following chart you can see well that the individual developments on average in any case the same idealized expected value from the graph above, but individual scenarios in between at the beginning, in absolute terms, sometimes even in profit.
Nonetheless, your mathematical expectation is still negative here as well. This leads to the first funny-looking situation that we are in the gambling with binary options, despite a possible profit mathematically always in the minus.
And believe me
Sooner or later we all get exactly what mathematics promises us.
Once we understand the paradoxical situation of having suffered a mathematical loss in between, despite a possible absolute gain, and that this is the only thing that matters in the long run, then we are on the right track.
With this principle, casinos, lottery, bookmakers, (retail) forex brokers and providers of binary options earn their money. After all, virtually no one can tell apart his real and mathematical profit.
That makes it possible to fool people into believing that they could be one of the few lucky people who, despite mathematically gigantic losses, have become rich.
The likelihood that you or I belong to it is virtually nonexistent, and I certainly do not trust my future to such a detrimental game for me.
A bet with a company in Cyprus
Another aspect is that the ordinary binary option is not a real security, but a simple promise of payment by the broker.
That means there are no real stocks, commodities or foreign exchange behind your trade, but a bare promise that you will be paid money under certain conditions.
That means, in the end, you’re betting on some windy (letterbox) company with mostly thin capital, which is usually based in Cyprus or Malta. Solid investment looks different if you ask me.
And just to make it clear once and for all:
This bullshit has as much to do with stock market as petrol with good scotch.
Binary options are just bets with an outrageous house edge.
How bloggers favor binary options fraud
There is a conspiracy between bloggers and binary options providers. Well, maybe not directly a conspiracy, but a kind of out of control rudder for bloggers to fraudulently present binary options in a good light.
It works like this:
We have calculated above that a binary options broker earns 7.5 cents gross profit for each euro converted per option. In combination with the extremely fast turnaround times of the poor fortune knight’s credit, there are fantastic “returns” for the option provider.
He could only make quick money if the greedy would simply give him the money. But when I think about it, that’s exactly what they do.
No matter. In any case, the binary options business is highly profitable for the broker. This in turn results in a, in relation to, lush marketing budget.
This is also necessary to attract fresh, greedy money, for example, with the well-known advertising promises in Internet ads.
Therefore, a (ON!) Click on Google Adsense for the search term “binary options” currently costs a whopping $ 13.60, whereas for “stocks” only $ 3.71 is due. This huge difference shows that binary options providers are more likely to be more profitable than real brokers if they can afford those prices.
The cause of the more profitable business is overpriced trading or binary options fraud on would-be traders.
If a blog is financed by advertising revenue, then the temptation can be great sometimes even a few positive words about binary options to lose.
The result is hypocritical contributions with statements such as:
… have advantages and disadvantages.
… you can try it.
… only for experts but do it.
This is a betrayal of your readers and anyone who earns even a penny promoting binary options is in my eyes a disloyal rag.
Hence my call to you:
If you find a link or a deliberately placed binary options banner on a blog, then avoid that blog for the rest of your life. Suspicious are also “neutral” broker comparisons for binary options. Here is also strong on every mediated customer earned.
This blogger / blogger had only their own advantage at your expense in view and you can not assume that in the future elsewhere will not happen.
Binary options and martingales
As with any quick-rich-without-a-finger-to-stir system, there are a few “gurus” who try to guarantee surefire profits at short notice through progressive bets. Packed as an online course, e-book or similar.
Progressive bet only means that the bet is increased after each loss. Classic for a martingale would be the doubling of the bet. This then results in a classic sawtooth-like development of trading capital. With a gigantic loss at the end (yes the blue line goes down to zero).
With this “strategy” losses can be delayed for a while, but never avoided. I will go into more detail on Martingale in a separate post and can only recommend that you look at it as well. Because this mesh will meet you even more often in life.
There’s simply no secret binary options strategy that lets you make surefire profits and achieve everything overnight.
There is no such thing, certainly not in any ebook for € 29.90.
Investing instead of speculating should be your motto.
Are binary options gambling?
In my opinion, yes. You have all the crucial features of a bet:
- Basically zero-sum game
- Negative expectation due to house advantage
- Payment promise of a semi-insured company in Cyprus or Malta
- Expires in a very short timeframe
- Deposit bonus on the first deposit as an incentive
- Promises fast money without work
With the best of intentions, I can not tell the difference to a bet.
Conclusion: Why binary options are fraud
Since binary options scams open the door, I can only advise against the things violently.
Basically, it is similar to the currency trading : First there is a financial product, which is neither good nor bad per se, but only a neutral financial product. No more and no less.
Due to its construction, it has an enormous lever, which theoretically allows fast profits, which in turn appeals to some people.
Who does not want quick profits, right?
Fast profits with only a few euros use, a little clicking and the staring of a screen? Sounds good, exactly what I was looking for!
This financial product is then marketed by some resourceful sloth ears to inexperienced and usually somewhat greedy people as THE way to financial freedom.
With unspeakably high costs for the user and thus unspeakably high profits for the provider.
Because the extremely high leverage affects not only profits and losses, but also on the transaction costs.
Many stockbrokers say they know the leverage effect and know what it means, but they do not understand that it also drives up the cost of trading.
That’s why a binary options broker wants to get you to trade as well, preferably as much and every minute.
This will bring you a negative expectation in the boat. A mortal sin at the investment, because then the math works against you.
Do not mess with math, baby.
Numbers do not lie and therefore my conclusion for you: Binary options = fraud.
Anyone who promises me with little use and risk in the shortest possible time to achieve fantastic results, is a dubious rip-off and is immediately whipped mercilessly out the door.
And so you should handle it too. Because you’ve probably heard before:
Nothing worth having falls into your lap.
Speaking of flogging: Because it is foreseen that some providers of binary options will try to separate their links and advertising in the comments, I can also announce right away that it flies out immediately. So save us all the trouble right now.
Could I convince you that binary options are scams? Or do you think that’s too stuffy in your opinion? Discuss with me in the comments!
PS: Binary options have very little to do with classic options. If you want to know more, have a look at my full and straightforward explanation of options . It is worth it!