What is binary options? An investment product that is challenging or a speculative tool

Investment Risks: Where to Start

Before understanding the structure of binary options, investors must recognize that this product carries a very high level of risk. Making investment decisions without a solid plan and proper money management can be comparable to gambling. Regulatory authorities in many countries therefore do not endorse such products.

Binary Options: Definition and How It Works

Binary options are financial products that allow opening only 2 possible positions.

Binary options are derivatives where investors must predict the direction of the asset’s price movement within a specified period. The returns and losses are predetermined from the outset. There is no middle ground—you either receive the full amount or lose the entire investment.

Key features of binary options

• Very short expiration times, from 1 minute, 5 minutes, to 15 minutes
• If the prediction is correct, the return is 70-85% of the original investment
• If the prediction is wrong, the loss equals the entire invested amount
• Investors know their potential profit/loss clearly before entering the position

Two Main Ways to Trade Binary Options

Call Option: Betting on an upward price movement

A Call Option involves opening a position where the trader expects the reference asset’s price to increase from the current level. If the prediction is correct, the option will be In the Money and generate returns for the trader.

Put Option: Betting on a downward price movement

A Put Option involves opening a position where the trader expects the reference asset’s price to decrease from the current level. A correct prediction of the downward trend will result in the option being In the Money.

Real Trading Example: Easier to Understand

Suppose a trader considers the GBPUSD pair, with the current price at 1.3902.

Scenario 1: Correct Prediction
The trader believes that in 5 minutes, the price will go higher, so they invest $100 in a Call Option. After 5 minutes, the GBPUSD closes above 1.3902. The result is the option is In the Money, and the investor receives $185 including ($100 principal + $85 profit).

Scenario 2: Wrong Prediction
After 5 minutes, the GBPUSD closes below 1.3902. The option is Out of the Money, and the investor loses $100 the entire amount.

Binary Options: Investment or Gambling?

This important question has no single answer. It depends on how the trader uses it.

If viewed as gambling:

• Opening positions randomly based on emotions
• No money management plan
• Making decisions driven by greed and fear
• Not calculating risk/reward in advance

If viewed as investment:

• Having a clear plan
• Analyzing the market before entering positions
• Managing funds systematically
• Calculating risk/reward ratios

Legal Status of Binary Options

Thailand: No legal framework yet

Thailand has not enacted laws regulating binary options trading. Investors interested in this must bear the risk themselves. If issues arise with the broker, they must resolve directly with foreign companies, which is often costly and difficult to succeed.

Other countries: Increasing bans

Many countries worldwide have taken stricter measures against this product:

Australia
ASIC (Regulatory Authority) considers binary options too risky. It found that only 20% of retail investors profit from this product. A ban on individual investors has been in effect since May 3, 2021.

European Union
ESMA (Financial Conduct Authority) issued a regulation banning the marketing and sale of binary options to retail investors since March 23, 2018.

United States
FBI agencies found most websites to be scams and do not recommend investing.

Belgium
Banned trading since August 2016 due to concerns over fraud.

Canada
Canadian Securities Administrators prohibit online advertising and trading instruments with less than 30 days of age.

Israel
Regulatory authorities classify binary options as gambling, not investment.

Germany
Bafin plans to ban advertising and sales to retail investors.

Comparison with Forex: Similarities

Both binary options and Forex are speculative tools that attract many traders, sharing these characteristics:

• Can be traded online at any time
• Can start with small capital
• Profitable in both upward and downward price movements
• When predictions are correct, can generate multiple times the initial capital

Comparison with Forex: Differences

Accessibility and Trading Periods

Forex – The foreign exchange market operates 24 hours a day, 5 days a week. Institutions and retail traders can access it at any time.

Binary options – Depends on the trading hours of the underlying asset. If based on stocks, trading hours are limited.

Instrument Maturity

Binary options – Very short-term, 1-15 minutes. You choose the start time and cannot change it afterward. Some brokers allow closing positions early, but investors must pay a fee.

Forex – No expiration date. Positions can be held from seconds to several months.

Risk and Volatility

Binary options – Price volatility does not affect the return; it is fixed from the start—win or lose.

Forex – Volatility directly impacts profit/loss. Major news and events can wipe out an entire account or lead to huge gains.

Profitability Potential

Binary options – Returns are capped; no leverage used, generally 50-80% of the principal.

Forex – Leverage is available; higher returns. Professional traders can earn 200% or more.

Which trading method should you choose?

If you want to define risk clearly

Binary options may be more suitable because the outcome is known from the start. However, to achieve long-term profits, you need to win more than 80% of your trades.

If you seek high returns

Forex is a good choice. You don’t need to win often if you manage risk well. Even with a low win rate, profits are possible because you can let profits run and cut losses quickly.

Summary

Binary options and Forex are both speculative tools with their advantages and disadvantages. Before investing, traders should understand the differences and be able to assess risks properly. Regardless of the product chosen, the most important factors are education, careful money management, and continuously improving trading skills.