Binary Trading Debate-What is Binary Options Trading

The other side of the equation is limited risk is counterbalanced by limited profits. This is a far more serious issue, and one with dramatic and potentially damaging implications. As it undermines one of the core principles of financial trading success. In many ways this takes us immediately to the core issue of the binary trading debate. And the issue is this.Longer term trading success is not based on the simple maths of positive and negative outcomes.

It is not a question of simply shifting from a 50/50 ratio to 60/40, or 70/30. A trader can be consistently success ful with fewer positive outcomes than negative, provided the losers are small and the winners are large.And herein lies one of the fundamental issues with these instruments. There is no facility to ‘uncap’ the profit side of the equation. This is not to say an instrument with a limited profit profile is a necessarily a bad thing.

In fact, this approach is common in the world of vanilla options, where strategies are adopted to limit both risk and reward.However, these strategies and others, are used only under certain market conditions and not all the time. In other words, on a discretionary basis.At this point let me explain this in more detail.

Vanilla options simply refer to those options available through a central exchange, such as the CME, whilst so called ‘exotic options’ refers to binary options. These terms are just a simple ‘hook’ with which to differentiate between the two. This book is about binary options, or as they are sometimes called ‘exotic options’. However, we will be touching on vanilla options to draw parallels and to explain various points throughout the book.

Vanilla options are very different instruments and I will be writing several books in the future to explain them in more detail. For the purpose of this book I will explain everything you need to know about vanilla options as they relate to binary trading.But to return to the maths of trading success.

We can be successful as speculative traders with more losing trades than winning trades, even as ‘low’ as achieving three positive trades for every seven negative trades. This is premised on the fact that these three positive trades will outweigh our seven negative trades, provided the losses are small and the profits are relatively large.

However, holding a positive position to maximize the profit available is one of the most difficult aspects of trading, but it does underpin the essential maths of long term consistent success. Therefore, if you are trading an instrument which restricts both your profit and loss, you will be facing a constantly uphill struggle.But to return to the maths of trading success.

We can be successful as speculative traders with more losing trades than winning trades, even as ‘low’ as achieving three positive trades for every seven negative trades. This is premised on the fact that these three positive trades will outweigh our seven negative trades, provided the losses are small and the profits are relatively large. However, holding a positive position to maximize the profit available is one of the most difficult aspects of trading, but it does underpin the essential maths of long term consistent success.

Therefore, if you are trading an instrument which restricts both your profit and loss, you will be facing a constantly uphill struggle.The power of a binary is only revealed when used in more sophisticated ways, which I explain as we move through the book. This is not to say they are not suitable for novice traders, because in many ways they are. However, only used in the correct manner.

I hope, even if you have never been involved in trading or investing, by the end of this book you will be able to make an informed decision about binary options for yourself. That’s my goal.How Has Betting Changed?At this point, let me explain how betting in the sports world has changed in the last decade, which will help you to understand how and why these approaches are increasingly being adopted in the financial world.

If we start with traditional sports betting, before the advent of the internet, the opportunities available for betting and gambling were limited, to say the least. In the UK, horse racing, football, rugby and cricket were the most popular, with betting offered via a network of high street bookmakers.

The bets offered were simple limited risk and limited reward. Your bet was your maximum loss, and if your selection won, then you would receive your stake and any profit based on the odds quoted. And one important point here is this type of bet was also characterized in another way. In horse racing, any bet was always on selecting a horse to win, not one to lose.