Binary Option is a financial instrument that requires in-depth understanding before deciding to invest.

In the world of online investing and trading, Binary Options are seen as accessible instruments that are fun and offer high potential returns. But before you get interested, everyone should understand what binary options are, how they work, and what risks are involved. Deep understanding is the key to making well-informed decisions, not just blindly chasing profit opportunities.

What Are Binary Options - Simple but Risky Financial Instruments

From a technical perspective, binary options are a type of financial contract with a special feature: the returns and losses are predetermined from the start and cannot change regardless of market volatility.

In binary options trading, investors deposit a certain amount and predict whether the price of the underlying asset (such as currency pairs, indices, or commodities) will move in a certain direction within a set time frame. If your prediction is correct, you receive your principal plus a return of 70-85%. If wrong, you lose your entire stake.

How They Work - Why Are They Called “Binary”

The term “Binary” refers to the fact that there are only two possible outcomes—win or lose—without a “draw” or partial payout.

These instruments are characterized by very short expiration times, ranging from 1 minute to 15 minutes, depending on the broker. During this period, if the closing price is in your predicted direction, the option is “In the Money,” and you earn money. If not, it’s “Out of the Money,” and you lose your entire stake.

Example of Trading GBPUSD

Suppose GBPUSD is at 1.3902. You believe that in 5 minutes, the price will go higher. You invest $100 on a Call Option.

• If the price rises: closes above 1.3902, you receive $185 ($100 principal + $85 profit).
• If the price falls: closes below 1.3902, you lose the $100 stake.

Types of Trading - Call Options and Put Options

Binary options allow traders to choose between two directions:

Call Option: Used when you expect the price to go up. It pays out if the closing price is higher than the opening price.

Put Option: Used when you expect the price to go down. It pays out if the closing price is lower than the opening price.

Is Binary Options Gambling or Investment? - Where Is the Line?

This is a common question because binary options resemble gambling. The answer depends on your trading approach.

If you trade randomly—choosing directions based on emotion, without a plan or money management, and without studying the market—then it’s essentially gambling, like betting on roulette.

If you trade with a plan—studying price movements, following rules for money management, and calculating risks and opportunities—then it’s a form of investment, albeit with high risk.

Legal Status of Binary Options - Global Overview

Binary options are not accepted in all countries.

Thailand

Thailand currently has no clear laws regulating binary options trading. This means Thai investors trading binary options through foreign brokers bear the risk themselves. If issues arise with the broker, legal action involves court proceedings, which can be time-consuming, costly, and challenging.

International Bans and Restrictions

Australia: ASIC (Australian Securities and Investments Commission) banned retail investors from trading binary options starting May 3, 2021, citing that 80% of retail traders lose money.

Europe: ESMA (European Securities and Markets Authority) banned advertising, marketing, and selling binary options to retail investors from March 23, 2018.

Belgium: FSMA banned binary options trading in August 2016 due to fraud concerns.

Germany: BaFin plans to ban advertising and distribution of binary options to retail investors.

USA: The FBI reports that many binary options websites are fake and fraudulent; investing is not recommended.

Canada: Canadian Securities Administrators prohibit advertising binary options trading websites and selling instruments with less than 30 days expiry.

Israel: Israel Securities Authority classifies binary options as gambling, not investment, and has banned them.

Binary Options vs Forex - Which Tool Is More Different?

Although both binary options and forex are popular financial instruments, they differ significantly.

Similarities

• Both can be traded online.
• Both allow starting with small capital.
• Both enable speculation on rising and falling markets.
• If predictions are correct, both offer high returns relative to the invested amount.

Differences

Trading Hours:

• Forex operates 24 hours a day, 5 days a week, across global markets.
• Binary options follow the trading hours of the underlying asset’s market.

Instrument Duration:

• Binary options are short-term (1-15 minutes) and cannot be modified once initiated.
• Forex has no expiration date; positions can be held as long as desired.

Risk and Returns:

• Binary options have fixed profit/loss from the start; leverage is not used.
• Forex offers unlimited profit potential and allows leverage to increase position size.

Possible Profits:

• Binary options typically yield 50-80% returns of the invested amount.
• Forex can yield much higher returns, sometimes 200% or more.

Should You Trade Binary Options or Forex? - Recommendations

There’s no right or wrong answer; the choice depends on your trading style and goals.

Choose Binary Options if:

• You want clear, certain risk levels.
• You can consistently win at high rates (at least 80%).
• You prefer simple, quick trades.
• You avoid complex leverage.

Choose Forex if:

• You accept higher risks for larger potential gains.
• You want flexibility in managing positions (opening/closing at will).
• You have skills to use leverage effectively.
• You can manage risks well, even if wins are less frequent.

Final Reminder - Binary Options Are Just Instruments

Ultimately, understanding what binary options are goes beyond definitions and mechanics. It’s about accepting that this instrument carries high risks and isn’t suitable for everyone.

When you decide to trade binary options, you should:

• Have a clear plan and rules.
• Avoid trading based on emotions or greed.
• Use funds you’re willing to lose.
• Study the market and understand the risks.
• Consider your country’s laws.

The most important point is to trade wisely and seriously, which will clarify the difference between trading and gambling.