Binary Option: An investment tool that is being debated

In the world of investing, Binary Options are increasingly gaining attention from investors as a financial product. However, before deciding to invest in this form, we need to clearly understand the characteristics and risks of Binary Options.

What are Binary Options?

Binary Options are financial instruments that reference the movement of the underlying asset’s price. Investors are required to deposit money to predict whether the price will rise or fall within a specified period.

If the prediction is correct, the option will be in the In the Money state and will yield a fixed return of approximately 70-85% of the initial investment. If the prediction is wrong, the entire investment is lost.

A distinctive feature of Binary Options is their very short lifespan (1-15 minutes), and they pay out in a “win or lose” manner, allowing investors to know the outcome before starting the trade.

Binary Options Trading Formats

Investors can open positions in two ways:

Call Option - Expect the price to go higher. The investor profits when the closing price is above the opening point.

Put Option - Expect the price to go lower. The investor profits when the closing price is below the opening point.

Example of Trading

Suppose trading Binary Options on GBPUSD at a price of 1.3902:

• Deposit $100 in a Call position ( expecting the price to go up)
• Duration: 5 minutes

If the prediction is correct: GBPUSD closes above 1.3902 → profit of $185 ($100 cost + $85 profit)

If the prediction is wrong: GBPUSD closes below 1.3902 → loss of $100

Is Binary Option Gambling?

This question has two possible answers:

Yes, it is gambling when investors trade randomly, based on emotions, without a money management plan or analysis.

No, it is not gambling when there is a plan, data analysis, risk management, and calculation of risk/reward ratios.

Legal Status of Binary Options

Thailand

Thailand does not yet have official laws supporting Binary Options trading. Investors must bear the risk themselves with the intermediary. If issues arise with foreign brokers, investors must handle legal actions on their own, which can be difficult and costly.

Other countries

Financial regulatory agencies in many countries have a negative view due to concerns about fraud and high risks:

• Australia - Banned retail investors from trading Binary Options since May 2021 (ASIC reports only 20% profit)
• United States - FBI states most Binary Options websites are scams
• European Union - ESMA banned marketing and selling Binary Options to retail investors since March 2018
• Belgium - Banned trading since August 2016
• Canada - Banned online advertising and instruments with less than 30 days maturity
• Israel - Banned trading, considering it as gambling

Binary Options vs. Forex: Similarities and Differences

Similarities

• Both are popular financial instruments
• Can be traded online
• Require relatively low initial capital
• Profitable from price increases and decreases
• Potential profits are large relative to the principal

Differences

1. Market Access and Trading Hours

• Binary Options - Must consider the trading hours of the underlying asset
• Forex - Open 24 hours, 5 days a week

2. Duration of the Instruments

• Binary Options - Short-term, 1-15 minutes; cannot be changed after trading begins (Some brokers allow rollover but require additional funds)
• Forex - No fixed duration; can be held as long as desired

3. Risk and Volatility

• Binary Options - Volatility does not affect the payout; profit/loss is fixed from the start
• Forex - Volatility directly impacts outcomes; higher risk

4. Profitability Potential

• Binary Options - Returns typically range from 50-80% of the principal
• Forex - Higher returns possible, over 200% with leverage

Should You Trade Binary Options or Forex?

Choose Binary Options if:

• You want clear risk management
• You can consistently win more than 80%
• You prefer straightforward outcome understanding

Choose Forex if:

• You seek higher returns
• You want flexibility in trading strategies
• You are willing to accept higher risks
• You have strong analytical skills

Summary

Binary Options are high-risk financial instruments with predictable returns. Compared to Forex, Binary Options have more limitations but are suitable for those who prefer clear risk management. The key is to make careful decisions, understand the differences between each instrument, and select the one that fits your profile and investment objectives. Additionally, keep track of legal changes in your country to ensure safe and compliant investing.