What is binary trading? Is it actually speculation or gambling?

Modern investors often seek new investment tools that can help increase profit opportunities, especially short-term options with high returns. Binary trading is one of the options gaining increased attention. But what exactly is it, and should it be considered a smart investment or a high-risk gamble?

How does binary trading work?

Binary trading is a derivative instrument where traders must predict whether the price of an underlying asset ( such as currency pairs or commodities ) will rise or fall within a specified period. The hallmark of binary trading is that the outcome is binary: either a win or a loss.

How the payout mechanism works

If the prediction is correct, the trader receives a predetermined return, generally between 70-85% of the initial investment. Conversely, if the prediction is wrong, the trader loses the entire amount wagered.

For example, if trading GBPUSD at the current rate of 1.3902 and deciding to open a Call Option with an investment ( that the price will go up in 5 minutes:

• If the price indeed rises: the profit is )$100 $185 cost + (profit$100
• If the price falls: the entire investment is lost

$85 Types of binary trading

Call Option = predicting that the price will go higher )upward$100
Put Option = predicting that the price will go lower ###downward(

Both options are very short-term, ranging from 1 minute to 15 minutes, making binary trading different from other derivatives.

Binary trading vs Forex trading: what’s the difference?

Both binary trading and Forex are popular choices for those interested in speculation on price volatility, but they have several key differences.

) Similarities

• Both can be traded online throughout the day
• Require a small initial capital
• Profits can be made from both rising and falling markets
• Skilled traders can achieve high profits

( Major differences

Binary trading: investment or gambling?

This is a question lingering in the minds of those considering it. The answer depends on your approach:

If gambling:

• No plan or strategy
• Opening positions based on emotions and greed
• No risk management
• Decisions based on random guesses

If investing:

• Clear trading plan
• Using technical or fundamental analysis
• Strict money management
• Calculating risks before each position

For traders aiming for long-term success in binary trading, maintaining a win rate of over 80% is essential; otherwise, overall returns will be negative.

Global legal status of binary trading

Due to issues related to fraud and high risk, regulatory agencies in many countries are monitoring binary trading.

) Status in various countries

Thailand – No legal framework yet; investors bear the risk themselves.

Australia (ASIC) – Banned retail traders from binary trading since May 2021 after discovering only 20% of retail traders profit.

United States – FBI reports that most binary trading websites are scams.

European Union ###ESMA( – Banned marketing/selling this product to retail investors since March 2018.

Belgium – Trading banned since August 2016 due to concerns over fraud.

Canada – Online advertising and options with less than 30 days expiry are prohibited.

Israel – Views it as gambling, not investment, thus banning trading.

Germany – Planning to ban advertising and sales to retail investors.

Should you choose binary trading or Forex?

Choose binary trading if:

• You want clear and limited risk
• Confident you can win 80% of your trades
• Prefer very short-term trading
• Want quick results

Choose Forex if:

• Looking for higher returns using leverage
• Able to manage high risks
• Want flexibility in managing positions
• Have more time to monitor the market
• Can win even with fewer trades )because you are in a “fight”(

Summary

Binary trading is a high-risk derivative instrument with very short durations and predetermined returns. Sometimes it is viewed more as gambling than investing, depending on how you use it.

If you decide to trade binary options, have a solid money management plan, understand the risks thoroughly, and be cautious of greed. Many regulatory agencies have highlighted the risks of fraud, and long-term profit opportunities are limited.

Alternatively, if binary trading seems too risky, Forex might be a better choice, offering more flexibility and higher profit potential, but also with high risks and requiring better skills.