My son tells me that he’s been inundated with ads for phone applications to do binary option trading. His gut tells him that this is “incredibly dangerous” and looks to him like “making a game out of day trading that you can play on your phone.” He’s got a smart gut.
Don’t be intimidated by the phrase “binary option trading”—it just means gambling on stocks. Want to bet that Google stock will go up in the next hour? You can do that with binary options. It doesn’t matter how much the stock goes up. You either lose your bet, or you get it back along with some pre-set amount of winnings. It’s very similar to gambling on sports.
I poked around a few binary options web sites and they feel surprisingly similar to gambling and poker web sites. They use words like “investing” and “trading” but they’re really promoting gambling.
What’s the purpose of binary options, you may ask? Let’s start with regular stock options. One purpose of regular stock options is to control investment risk. Sophisticated investors who understand stock options well can use them to customize the overall risk levels of their portfolios. Less sophisticated investors (almost everyone) who use stock options are just gambling in ways they don’t really understand. Binary options take away the potential risk-management properties of regular options and leave just the gambling part.
Just in case you’re thinking that you might like to try binary options because you know more than your neighbours about stocks, don’t bother. You’ll never be betting against your neighbours. You’ll be betting against sophisticated sharks who will pick your bones clean.
So, if you have excess money that you need to get rid of, you can give binary options a go. But, before you do, please send me half the money—the binary options people can have the other half. I’m not greedy.
The amount of global financial derivatives is astounding (there's even weather options!). I think almost all are used in an insurance type manner, but pretty sure the big players take most of the "profit".
ReplyDelete@SST: Your right that most types of derivatives have legitimate uses for insurance, but I can't see such a use for binary options. If a stock price drops, it matters how much it drops for insurance purposes. But binary options either pay a fixed amount or they don't.
DeleteSounds like a lot of fun ? I'd be curious to find out where these came from, and why (I am assuming some smart investment firm wanted to find another income stream and came up with this?).
ReplyDelete@Big Cajun Man: It's a free country. Anyone with a financial innovation who follows the rules gets to play. But that doesn't mean the rest of us should play the game.
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