Is Binary Options Gambling?

It is always a little unsettling when binary option trading is equated with gambling. This is because no one wants to take reckless risks with money. We also hear about the serious consequences of pathological gambling all the time including strained relationships, problems at work and financial disaster. So how much do binary options have in common with Texas Hold’em, Craps, Bingo or even football betting? In truth, both are about wagering money on an event with an uncertain outcome with the primary intent of winning money but there is a key difference between the two. Gambling is about luck; Trading is about skill.

Binary Options – A Brief History

The history of binary option trading can be traced back to 2007 when the Options Clearing Corporation proposed a rule to allow binary options to be traded on major markets. In 2008, it was further endorsed by the Securities and Exchange Commission, the American Stock Exchange and the Chicago Board Options Exchange (CBOE).

This led to a widespread popularity of binary options and a massive growth in the industry. The popularity was further accentuated by the simple nature of this relatively new way of trading.

Earning Money with Binary Options

In binary options, traders make assessments about the future price movement of assets through a trading platform. In order for a trade to be successful, the price of the asset at Expiry Time must be in agreement with the direction you anticipated when entering the position.

To increase their chances of success, traders can do several things, the most important of which is market analysis. By understanding where the market is going and the signals it provides, you can turn trading into a rewarding financial venture. To inform your trading decisions, free trading education and information is widely available over the web.

This is in stark contrast with gambling in which people keep hoping for a ‘big win’ that always seems tantalisingly close but almost never comes.

Similarities & Differences between Gambling & Binary Options

Binary options are equated with gambling because of a few similarities in the principles underlying the two practices. For example, in both gambling and binary option trading, you risk losing your stake money if the outcome of an event goes in a direction different than you originally anticipated.

The trick is to remember that this does not make binary options the same thing as gambling. For instance, elephants are grey but not all grey things are elephants.

Similarities

  • In both gambling and binary options, people wager money on the outcome of an event.
  • The outcome of the event is uncertain.
  • If you’re wrong, you risk losing your stake money.

Differences

  • In gambling, the odds are always in favor of the house.
  • Gamblers wager money on the outcome of a random event.
  • Randomness in gambling means that it is impossible for gamblers to accurately predict outcomes.
  • With binary options, you can study the financial market to increase your chances of making accurate predictions.
  • Gambling is about having the luck to beat the odds; trading is about using your skills and knowledge to earn payouts.

Binary Options is not Gambling

From the above, it becomes abundantly clear that trading with binary options and gambling are not one and the same thing. With binary options, traders learn about the industry and acquire insights into the financial market before making informed decision. With the right strategy and attitude, the odds are in favor of the trader making a profitable trade.

In gambling, people risk money in the hope of a payoff if a random event occurs. In every betting game, the odds are against the player and the longer you gamble, the more likely it is that you will lose money. What’s the appeal then, you may ask. Well, many gamblers have the false belief that they will be able to “beat the system” but over time they lose a lot of money.

This is why gambling is considered a problem and there is such a thing as Gamblers Anonymous to help people with a gambling addiction. The same cannot be said about binary options because there is no such thing as Binary Options Anonymous. Binary option trading is about keeping up with the financial markets and conducting market analysis to make well thought out trading decisions.

Binary Options vs. Gambling – The Verdict

In summary, gamblers bet money on a random event taking place. By definition, randomness means that each possible outcome has the same chance, or probability, of occurring. In binary option trading, you study the financial market to make predictions about the price movements of assets. You are not beating odds; you are using knowledge and skill to earn payouts.