What is Binary Option: Risks and Opportunities of the Popular Derivative Instrument in the International Market

In the modern investment world, traders are looking for new tools to increase profit opportunities, and one of them is Binary Options, a derivative instrument that has gained increasing attention in recent years. However, before deciding to invest, we need to understand how Binary Options work, what the risk levels are, and whether there are legal protections in Thailand.

Meaning and How Binary Options Work

Binary Options are a type of derivative instrument where investors must allocate funds to estimate the direction of the underlying asset’s price movement (such as currency pairs, stocks, or commodities) within a specified time frame. If the prediction is correct, the option pays a return of 70-85% of the invested amount. If wrong, the investor loses the entire invested amount.

A key feature of Binary Options is the very short expiration period, approximately 1-15 minutes, with a clear “win or lose” payout system. This allows investors to know the expected return and assess risk from the start of trading.

Structure of Binary Options Trading

Binary Options allow investors to choose between two price directions:

Call Option – A trade order for those who expect the asset’s price to rise from the current level, used when the market is bullish.

Put Option – A trade order for those who expect the price to fall, used when the market is bearish.

Practical Example of Binary Options Trading

Imagine trading the GBPUSD pair at a price of 1.3902. If the investor predicts the price will go higher in 5 minutes, they open a Call Option with a $100 stake. The outcomes are:

• Success: If the price closes above 1.3902, the option is “In the Money,” yielding a $185 return ($100 principal + $85 profit).

• Failure: If the price closes below 1.3902, the option is “Out of the Money,” and the entire $100 is lost.

Is Binary Options Gambling or Investment?

This is a common question, as the trading style resembles gambling. The distinction depends on how traders approach it:

Binary Options as Gambling – When traders guess randomly based on emotions, without a money management plan, and without risk assessment.

Binary Options as Investment – When traders plan, analyze the market, manage funds, and calculate risks before opening positions.

The difference lies in the mindset and preparation of the trader, not in the instrument itself.

Legal Status of Binary Options Abroad

Since Binary Options involve financial transactions, different countries have various regulations:

Thailand – There are no specific laws for Binary Options, meaning investors bear the risks of intermediaries themselves. If issues arise with foreign brokers, claims may be difficult and costly.

Australia – ASIC (Australian Securities and Investments Commission) considers Binary Options high-risk and difficult to predict, banning retail investors from trading since May 3, 2021. Only about 20% of retail investors succeed.

United States – The FBI has found that most Binary Options trading websites are scams, and investment is not recommended.

European Union – ESMA (European Securities and Markets Authority) has prohibited marketing and selling Binary Options to retail investors since March 23, 2018.

Other Banned Countries – Belgium (August 2016), Israel, and Germany also view Binary Options as more of gambling than genuine investment.

The main reason for bans is that Binary Options have been widely used in scams targeting retail investors.

Binary Options vs. Forex: Which Tool Suits Which Investor?

Both Binary Options and Forex are popular financial instruments but differ significantly in many aspects.

Similarities

• Both can be traded online
• Traders can start with small capital
• Both allow speculation on rising and falling prices
• Potential for high profits when predictions are correct

Key Differences

1. Trading Timeframes and Liquidity

Forex is traded 24 hours a day, 5 days a week, on a decentralized market across major financial centers worldwide. Binary Options depend on the trading hours of the underlying assets.

2. Duration of Instruments

Binary Options have very short durations, up to 1-15 minutes, with automatic expiration. Some brokers allow early closing but with fees. Forex positions can be held for days or months without expiration.

3. Risk and Profitability

Binary Options have a fixed win/lose outcome from the start, with typical profits of 50-80%. Forex involves higher risk and potential profit, sometimes exceeding 200%, due to leverage.

4. Risk Management Capabilities

Binary Options have a fixed risk, while Forex traders can set stop-loss and take-profit points, offering more flexibility.

How to Choose Binary Options: What Investors Need to Know

When deciding between Binary Options and Forex, consider:

Choose Binary Options if:

• You want clear risk control
• You prefer short-term trading
• You aim for a positive overall return, winning more than 80% of trades

Choose Forex if:

• You seek higher returns and more flexibility
• You can accept higher risks
• You have skills in money management and leverage use
• You want longer trading periods

Summary and Important Reminders

Binary Options are derivatives that can be either investment or gambling, depending on how they are used. Without proper planning and money management, they tend to become gambling. Many countries ban Binary Options to protect retail investors.

Before investing in any instrument, study, practice with demo accounts, and assess your readiness. Good knowledge and planning are key to success in financial markets.