Binary options trading is extremely popular in the recent days. With the Internet boom thousands of online brokers started offering this financial option to their clients. By having this in hand, every person with little computer knowledge with just few clicks can start buying and selling options.
Moreover, the binary options are relatively simple to manage. You have a variable which you can trade – let’s say the exchange rate of the Japanese yen against the US dollar (we have thousands of options to choose from). You can choose whether the price of the yen will rise or fall in a given time period. If you guess the movement of the currency correctly you win money if you don’t you lose. The time period is different, as you can play for minutes, days or weeks.
Is there a problem with this system and what would say every expert in sports betting if he or she take a glimpse of binary options?
The most common answer would be that you must be crazy to invest money in binary options.
The problem comes from the so-called margin. This is the profit that the broker retains for itself, as a result of your and the other investors activities. Consider the above example with the yen and the US Dollar. If you invest your money that the yen will fall against the dollar and you invest with 100 USD, let’s assume that there is another person who would do the opposite and finance the option that the yen will climb against the dollar.
If you win, the broker will return your 100 USD plus your income of 80 USD (at best). But he will take 100 USD from the other person who would have lost his or hers money on the same investment. Thus broker has guaranteed 20 USD whatever the outcome of the investment is.
This is the margin and this is something that every sports tipster will laugh a lot. The reason is that the sports betting bookmakers offer much lower margin (usually around 4%, against 15 and more for the one offered by the brokers of financial options) and therefore your chances of winning in binary options are much smaller.
There is not huge difference between the events financial or sports – you have two possible outcomes, but your chances of winning are much smaller.