Who Binary Options Appeal To

Common Views About Trading

While there are a lot of people who invest in securities, the number of people who trade them is much smaller. This is due to a lot of factors, but the main one is probably the fact that people know so little about trading and don’t really make the effort to become more informed.

Most of the information that we get about trading comes from people who may be familiar with investing but know very little about trading, so little in fact that they believe that having some knowledge about long term investing somehow makes you an expert in trading as well.

Who Binary Options Appeal ToThese folks will tout the buy and hold strategy for investing, and not even realize how inferior this approach is. They will tell you that it is futile to try to time investments, based upon the fact that they have no knowledge or skills in doing it, and the ridiculousness of these claims doesn’t bother them because they simply are ignorant to such things.

When it comes to trading, well that’s all about timing things, so that’s no good for sure. Forget about all the successful traders that are out there, this is just a prescription for losing money if you accept the fact that markets can’t be timed.

Perhaps there are a few brilliant individuals that can time markets successfully, but this takes an enormous amount of natural talent and years of dedication perhaps. None of this is the case and a lot of very ordinary people become successful traders, and while intelligence does matter, high intelligence isn’t required as long as we have the proper knowledge and experience.

It is also commonly believed that it takes quite a bit of money to get started in trading, tens of thousands of dollars for instance. We also need to not be attached to this money, being willing to lose it all and be very comfortable with that, something few people can manage. We’re also supposed to only set aside a small percentage of our liquid assets to trading, and of course keep almost all of it in buy and hold investments.

Technical Barriers to Trading

Still though, trading does attract a fair number of people, mostly neophytes who go too far the other way, shunning the extremely cautious view of these so-called investment professionals and jumping into trading with both feet and little to no idea of what it takes to be successful at this.

This usually does not end well, due to a heinous lack of preparation and understanding, and it’s well known that the majority of traders fail. This just fuels the fire for those who take a dim view of trading, although a more sensible approach would be to look at why the 1 in 10 traders do succeed and especially why the 9 in 10 do not.

Trading well is not really that difficult, but it does present some real challenges. There are several significant ones, with the most important being how to manage risk. We also need to be able to come up with trading ideas that actually do work over time and not just over a few trades, which is what newer traders tend to look at, and we also need to have the discipline to execute our trading plan faithfully and not screw it up by succumbing to the added pressure of real money trading.

We also need to have the virtues of patience and dedication in abundance, as this is not something that you just pick up right away. Being a good trader requires some real time and some real commitment at a minimum, and even the world’s best traders struggled at least somewhat initially, before they learned to be great.

There are no real shortcuts to this, this is not about just opening an account and placing a few trades and expecting to rock the markets right out of the gate. Things will need to be tried, and mistakes will need to be made, and those of us who try enough things to figure out what works and what doesn’t, and learns enough from our mistakes, are the ones that will at least be in a position to succeed.

When we embark on a new task that we aren’t that familiar with, it is said that we don’t know what we don’t know, and this is certainly true with trading. Trading is complicated enough that a lot of people may find it to be too daunting when they get to the stage where they become more aware of their ignorance, when we move from the state of unconscious incompetence to conscious incompetence.

Anything that can help bridge the gap and serve to allow budding traders to become more competent more easily will allow people to have a better chance to succeed at trading. Binary options serve to at least present themselves as a means of trading that is easier to navigate, and when all you need to decide about a trade is whether you want to take it or not and then you are done, that’s a big advantage.

Binary Options Present Much More Like Casino Betting

Gambling is far more popular than trading among the public, and the main reason is that placing a bet on something where you either win a prescribed amount of the bet is successful or lose the bet if it is not is as simple as it gets.

Trading involves a lot more complexity at least as far as the outcome goes, especially among those people who have very limited knowledge of it. The fact that a lot of people feel better about binary options where the most you lose is the cost of the trade is testimony to this.

To say something like this means that you have no idea that stop losses can be placed with any trade and this accomplishes the same thing, defining your risk by the stop, and also has a lot more flexibility as one is not just limited to losing one’s full stake in an options trade.

Still though, for those who really do know this little about trading that they aren’t even aware of stop loss orders, not risking more than the price of a binary option is going to be appealing. What’s even more significant is that the payoff of binary options trades is set, as opposed to our having to decide where to exit, which is the real challenge of trading.

This is the main way that binary options simplify trading and make them a lot more accessible to the public, taking what is generally a pretty complex task and taking a lot of the complexity right out of it.

Trading binary options isn’t as simple as people think though, and we still have to decide whether or not certain potential trades are worth taking, or what side of the trade we should be on. These are the two elements needed, figuring out well enough what direction a market is moving in and whether or not we have enough of a trading advantage in a particular trade to overcome the costs of trading, the difference between what we win and what we lose with a binary options trade.

While being successful at binary options trading does require some real skill and quite a bit of it actually, it being a simpler form of trading does go a long way toward making this form of trading both more easily understood and much easier to execute. All we do is buy a binary option and we are done with the trade and can look toward out next entry.

The Appeal of Beating the House

This is a lot like placing a bet at a casino actually, and this is something that anyone can do. Some people go to great lengths to try to beat the house though, and this has been a pipe dream of many over the history of casino betting, even though the house has a mathematical edge that cannot be overcome save for card counting at blackjack.

People get sucked in though by buying into schemes that promise success at gambling, even though this is a ridiculous notion and impossible actually, and the reason is that their zeal for all this serves to blind them to the simplest of statistical understanding.

There are people that for instance use a Martingale system where they increase their bets when they lose, not realizing that this will eventually be shut down by house limits or the size of their stack and they will lose all of it in time with such a strategy.

Binary options, on the other hand, do allow us to place bets like we would in a casino and obtain a real edge if we are skilled enough. The potential here is well beyond any very slight advantage that card counting in blackjack would provide, and everyday people are now presented with an opportunity to actually and finally beat the house, and delight in the prospect.

Binary options are a negative sum game just like casino wagering is though, where the house so to speak, binary options brokers in this case, always get their cut, and among the bettors, binary options traders, we will see a distribution of winners and losers among them.

More money will be lost than won of course because the broker’s end of the trades will always be present, but we have real opportunities to be among those traders who are rewarded for their skills.

The beauty of trading is that it is a game of pure skill, unlike poker which is a combination of the two, even though skill will win out in the long run as luck evens out. Casino gambling is on the other hand pure luck, where luck evens out against us every time.

Even though we might not have the skills to succeed at binary options yet, the very idea that we could become good enough at this to make money on balance is a prospect that many people find very exciting.

Binary options, therefore, attract a different crowd than other forms of trading do, people who like to gamble and would much prefer to do their gambling with something that they at least have a chance to beat.

Many criticize binary options just like a lot of people criticize gambling, and some even criticize trading in general, but there will always be detractors. There are also some shady operators in the binary options world and of course those looking to paint a dim picture will overgeneralize here and have us believing that there is a lot of danger out there.

Provided that we stick with reputable and regulated binary options brokers though, there is nothing to really fear and the people who want to scare us are the same people who will say that online gambling sites are disreputable just because they aren’t regulated in the same country as they live in, which is nonsense.

Binary options may be considered to be a “lite” form of trading but it is one that people can more easily understand as well as more easily trade and that has a lot of people trying this form of trading out. Binary options offer all the fun of gambling with an opportunity to succeed and this is a pretty nice combination.

Andrew Liu

Editor, MarketReview.com

Andrew is passionate about anything related to finance, and provides readers with his keen insights into how the numbers add up and what they mean.