What is Binary Option and why do many countries prohibit investing in it

Many investors are curious about the new financial products that keep emerging, one of which is Binary Options, which has gained increased interest from the online investment community. But besides its popularity, this financial product has a history of being banned in many countries.

What exactly is Binary Option

A Binary Option is an (Derivative) instrument that allows traders to assess the price direction of an asset within a specified time frame. Investors must guess whether the asset’s price will go up or down.

In the payout structure, Binary Options use the principle of “all or nothing” (All or Nothing), meaning:

• If the prediction is correct: Investors receive their principal back plus a return of 70-85% immediately.
• If the prediction is wrong: The entire investment is lost immediately when the option expires.

Characteristics of Binary Option

Very short expiration periods: Generally between 1-15 minutes, unlike Forex which can be held for a longer duration.

Two-way betting:

• Call Option: Bet that the price will go higher.
• Put Option: Bet that the price will go lower.

Trading example: If GBPUSD is at 1.3902 and you think it will go higher in 5 minutes, you place a $100 Call position:

• If at expiration the actual price is higher than 1.3902, you earn your principal + $185 return(.
• If the price drops, you lose the entire amount.

Is Binary Option really gambling or not

This is a complicated question. The answer depends on each individual’s trading approach:

It may be considered gambling if: It involves random guessing, no plan, and no risk management.

It is not gambling if: It involves analysis, a clear plan, good money management, and risk-reward calculations.

Why do other countries ban Binary Options

Many countries have announced bans or strict restrictions on Binary Options trading:

Australia $100 ASIC$85 : Found that only 20% of retail investors profit from Binary Options. Banned since May 2021.

United States )FBI$100 : Identified risks related to scam websites. Not recommended for investment.

European Union (ESMA): Banned advertising and selling Binary Options to retail investors since March 2018.

Belgium: Banned trading since August 2016 due to concerns over fraud.

Canada: Banned trading options with less than 30 days to expiration and online advertising.

Germany (BaFin): Planning to ban advertising and selling to retail investors.

Binary Option VS Forex: What are the differences

Similarities:

• Both are tradable online.
• Start with small capital.
• Can speculate on both upward and downward movements.

Key differences:

1. Holding period

• Binary Option: 1-15 minutes (No option to close halfway).
• Forex: From seconds up to months as desired.

2. Risk

• Binary Option: Risk is predetermined; maximum return 70-85%.
• Forex: Risk can be increased via leverage; returns are unlimited.

3. Volatility

• Binary Option: Less volatile due to very short duration.
• Forex: Volatility directly affects profit and loss.

4. Source of profit

• Binary Option: Depends solely on the price direction (All or nothing).
• Forex: Depends on the magnitude of price movements.

Which trading method should you choose

Choose Binary Option if:

• You want clear, limited risk.
• You have a win rate over 80%.
• You prefer quick, straightforward trading.

Choose Forex if:

• You want higher returns.
• You have good analytical skills and risk management.
• You want trading flexibility.
• You are willing to accept higher risk.

Important warnings

Whether you choose Binary Options or Forex, remember:

• Invest only what you can afford to lose.
• Derivatives are highly risky.
• Study and practice sufficiently before real trading.
• Avoid unofficial websites without licenses.