Should novice retail investors trade binary options?

[TradeProsper]

So I have a question,... I have been in the markets since 1997, and for the past 14 years focused on derivatives. I find it fascinating how novice investors/traders flock towards Binary options.

I personally do use them, and they are great for yield enhancement trades or creating specific payoff structures (like contingent premium vanillas etc).. but really... for novice investors to just use them as outright directional plays as a standalone strategy sounds crazy, to me at least...

So wondering what am I missing? Has anyone looked at probability theory lately? Most new traders don't trade frequently enough to truly capture the stats inherent in these things, and I doubt accurate risk management is at the forefront? So what is it then??... purely the thrill of the game? The potential for big pay-outs with low initial investment?

If you are a novice investor, please would you share your thoughts... I would love to gain some insight as to the spike in their popularity...

 

[MajorMagnuM]

do novices percieve binaries as a 50/50 kinda thing?

 

[TradeProsper]

I don't think so,.. for the most part, at least to those I have spoken with its not even the case of 50/50, at times its literally the concept of paying $10 to get $100 possible pay out, and not taking into account any consideration of the probability of that particular strike... to add to this, most tend to trade sporadically which is even worse as now they take the effect of stats out of the results as the lower trade events effectively reduces the sample size...

 

[Lightning McQueen]

binary options and binary option ib/signal services are heavily promoted, hence their popularity.

why wouldn't a novice get excited about such claims portrayed in the ads.

 

[TradeProsper]

Good point!!

 

[30reef]

Short term binary is basically like playing roulette without free drinks and pretty girls. House will kill you in the end and you don't get a buzz or any sort of job out of it!

 

[moka2]

So I have a question,... I have been in the markets since 1997, and for the past 14 years focused on derivatives. I find it fascinating how novice investors/traders flock towards Binary options.

They are fascinating because of quick results ( like a horse race) and user friendly interface
But that is it
I won;t touch them because of following reasons
- Market Maker model
- Not regulated in major jurisdiction ( Except Nadex in US even then it is not clear ( in my mind) Of Nadex is a true exchange or a just a copy of IG named as "Exchange" Ownded by same company

What fascinates me is for somebody who has been trading derivatives for 15+ years . how come you donlt just mimic them with Exchange traded Option spreads!
If you do compare the Risk reward of 1 week expiry Binary and same in ETO spread...may be you will get an answer to your question...!( keeping aside the issue of Binary not being regulated! or thinly regulated)
What you say!

 

[ashbyman]

how come you donlt just mimic them with Exchange traded Option spreads!

Can you suggest a broker/platform?

 

[moka2]

Can you suggest a broker/platform?

You mean for constructing Binary by using ETO?
ANy decent Options broker
OPtions Express
Options KIng
Think or Swim
IB

 

[sun11]

Short term binary is basically like playing roulette without free drinks and pretty girls. House will kill you in the end and you don't get a buzz or any sort of job out of it!

I agree with you. Most of the binary option brokers pays 70-90% returns on each bet, max sometimes with touch no touch 110%. Now standard is 70%. I think this is a pathetic return, if you don't have a wining system which let you to stay profitable with such risk/reward.

Most of the binary option broker promotes in wrong way, they show compounding, like $500 to $850 to $1445. I think if you compound 100%, then you are risking too much (just my point of view).

 

[NVP]

short answer - NO

its a poor poor soft sell into newbies making you think its a safer option to full blooded trading........the opposite is true ...........you will be fleeced over time

N

 

[jkane]

suckers trade binaries

get a real broker account and trade real options on usa exchanges where many markets a penny wide

Nadex and others a ripoff..no liquidity and wide margins

a recipe to lose

 

[moka2]

suckers trade binaries

get a real broker account and trade real options on usa exchanges where many markets a penny wide

Nadex and others a ripoff..no liquidity and wide margins

a recipe to lose

Yes in deed on few fronts
- Non Regulated Market
- Counter party risk
- Chance of a complete scam
But some people on this forum promote them to unsuspecting new traders!

With Nadex . I would say same issue that CFTC regulated OTC Fx brokers, Nadex calls themselves a TRUE exchange but I take that with a pinch of salt..
Looks like smells like behaves like IG markets a Market maker!
Once I checked who was the main market maker with Nadex and it turned out to be a company who owns both Nadex and the market making making arm!

 

[Hate2Lose]

So I have a question,... I have been in the markets since 1997, and for the past 14 years focused on derivatives. I find it fascinating how novice investors/traders flock towards Binary options.

I personally do use them, and they are great for yield enhancement trades or creating specific payoff structures (like contingent premium vanillas etc).. but really... for novice investors to just use them as outright directional plays as a standalone strategy sounds crazy, to me at least...

So wondering what am I missing? Has anyone looked at probability theory lately? Most new traders don't trade frequently enough to truly capture the stats inherent in these things, and I doubt accurate risk management is at the forefront? So what is it then??... purely the thrill of the game? The potential for big pay-outs with low initial investment?

If you are a novice investor, please would you share your thoughts... I would love to gain some insight as to the spike in their popularity...

I'm fairly sure it's just 'a punt'. It's easy to understand, easy to get into, decent returns if your gamble comes in!

I bet many, if serious, quickly move on to bigger and better things.

 

[binarymatt]

On the other hand, binaries are really simple to analyze. You risk X to make Y.

I also see a lot of people posting vids on youtube of martingale strategies with binaries which can be dangerous to some one new who doesn't understand the math. But with a little luck, I suppose some people get away with it.