It is not uncommon to hear binary options trading referred to as a form of gambling or betting. This, of course, exists because there can be certain parallels drawn between this form of trading and gambling.
Here, you are ‘wagering’ money that the value of an asset will move in a certain direction. If you fail to make the right prediction, you are required to forfeit your portion of the money. This can often lead to a burning question about whether or not binary options trading is a form of investment.
The quick and short answer to this is: yes, binary options trading is a type of investment. To understand this a little more, read the explanation below.
An Educated Prediction
Many people may presume that with binary options trading, you are merely taking a shot in the dark or making a guess. In most instances, this is precisely what gambling is. With binary options, however, you are never making wild predictions.
- Safe Binary Options Strategies
- Is Binary Options Trading Riskier Than Forex Trading?
- Tools for Binary Options Trading
Instead, these are based on certain factors. First, you will have to decide on asset class that you would like to place trades with. Then, you will have to pick a strategy, determine a trade period, and then fine-tune this strategy accordingly.
Even before they place their first trade, most traders have spent a considerable amount of time and effort perfecting their prediction. Therefore, it is not based on a wild hunch or a feeling unlike with wagering.
The Outcome is Not As Uncertain as You May Think
Take the game of roulette, for instance, once the ball is tossed, there is no way to determine where it is going to land. Now, this cannot be applied to binary options trading. This is because most traders do not place a trade without valid reasoning.
They have look at the market factors and determine that a particular outcome is especially like as a result. Imagine, for instance that the U.S. dollar has dropped quite drastically. Or, there are political events that are taking place that typically result in the depreciation of this currency.
Based on this, a trader may place a trade on the price of gold going up. This is because they are aware that based on past experience this is something that happens whenever the U.S. dollar reduces in value. As such, the outcome is not always uncertain in binary options trading.
There are Ways to Minimize Risk
With gambling, if you are dealt a bad hand there is nothing that you can do about it. At the very least, it is a struggle to recover your position and improve the odds of you winning. With binary options trading, however, there is always some way to reduce the amount of risk that you are facing.
One of these as already discussed is with the use of strategies. For example, you could utilize a strategy that could help to counteract the possibility of an out of the money trade.
However, you can also have an agreement with your broker to receive some of the money that you may lose in a trade. Therefore, there are numerous ways to avoid you losing all of your money.
These points above prove that binary options trading is a form of investment. Yes, there is a certain amount of threat involved but this is something that all types of investments face at one point or another.