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Hello traders friends! Very often you can hear that “Binary options are a casino”. Is it so? We tried to identify the similarities and differences between casinos and binary options, compared the expected value and the probability of leaving with a profit. We also reviewed typical “casino” strategies in relation to options.
Binary Options & Casino
Binary options , as a relatively new financial instrument in the retail market, attract a lot of attention from people who were not previously interested in the topic of trading at all. At the same time, many are still very skeptical about trading binary contracts, as evidenced by a fairly large number of negative reviews on the Internet.
Such a negative reaction of some traders can be explained by the target audience chosen by the PR departments of the companies. On the one hand, the undoubted advantages of binary options include the simplicity of transactions and a large selection of contract types. That is, you do not need additional training to trade binary options. Brokers provide the necessary minimum to start a career as a trader in the financial markets – a logical separation between the types of contracts and an intuitive trading process that does not cause unnecessary questions. Also, if we compare the retail market with stock options, the former have a number of obvious advantages.
The fact is that an affordable and highly profitable investment method attracts gamblers who have no past experience in trading on the stock exchange, and who want to get rich as quickly as possible. As a rule, such people try to force casino principles onto the market, but such undertakings, of course, do not lead to anything good. Do not forget that if binary options originated from a real exchange asset, then the casino was originally created with the aim of making money on the loss of customers – this is the fundamental difference.
Unlike casinos, the binary options market is regulated. Large brokers may have several regulators, each of which monitors complaints and claims against brokers. A complaint to the relevant regulatory authority can save you from a complete loss of funds and dishonest broker work, which cannot be said about an online casino. It is not possible to return the money from the casino, and the offices themselves are on the verge of breaking the law.
Probability of winning
To determine how binary options trading is similar to playing in a casino, you first need to understand how roulette works.
At the same time, success in the financial markets, or when playing poker, will largely depend on your perception. If you perceive trading as a game, then your trading result will not differ much from a series of trades opened at random. Taking into account the trading costs, the mathematical expectation of such a trade will be negative, which makes the result essentially indistinguishable from a game of roulette.
In any case, in binary options trading, more than half of the predictions must be correct, otherwise you will not earn anything. The required percentage of winning trades to cover the loss can be calculated using a simple formula: 100% / (100% + 80%) , where 80% is the payout percentage under the contract. That is, if under a binary contract, in case of a win, 80% of the transaction amount is paid, then in order to achieve at least breakeven, about 56% of transactions should be closed in our favor. In other words, in order to trade binary options profitably, you must guess the direction at least 6 out of 10 times. The payout percentage for each broker is individual and may vary depending on the expiration time and the type of trading instrument.
Applying casino strategies on binary options
Despite the fact that winning at roulette is random, and the probability is far from in favor of the player, using money management methods you can increase the chance of winning for a short time. For this, various betting systems have been invented, which make it possible to use this trading capital with greater efficiency.
There are several basic financial management strategies that were invented long before the formation of modern exchanges. Each of the systems interprets the theory of probability in its own way, due to which it is possible to turn a losing series of transactions into profit.
I would like to start with probably the most famous strategy. To avoid losses, the Martingale strategy provides for doubling the bet after each loss. The series of doublings continues until the profit corresponding to the first bet is reached. The next bet is opened with the minimum size. If you win, the bet amount does not increase. When trading this strategy, a fixed positive MO is achieved, since the entire loss is more than covered by new deals.
- In case of winning, the size of the bet does not change;
- In case of a loss, the bet is doubled to cover the losing streak + profit from the last bet.
For example, you bought a $ 100 option. In case of failure, each next bet is doubled. Thus, it is possible to cover the result of the previous series of failures, and earn a little more.
Provided you have an unlimited deposit, the strategy can be considered a win-win. The system, in principle, does not provide for any limitation of losses – this is its main disadvantage. In fact, such a strategy is quite effective when playing roulette, and can be profitable for a short time. But, given that the theory of probability initially works against us, as well as the fact that all gambling tables today have a limit on the maximum bet size, the meaning of using this strategy to make money in a casino is lost.
Fibonacci Strategy and Pyramidal
Nevertheless, for many, the Martingale method is too aggressive, since the size of the bet in the event of a losing streak can instantly skyrocket by a couple of orders of magnitude. That is, if you miscalculate by just one knee, you can easily lose all your savings. For those who do not have a bottomless pocket, the Fibonacci strategy was invented.
The system increases the bet size more smoothly and gradually, in accordance with the proportions of the Fibonacci number sequence. As we know, each next number in the Fibonacci sequence is the sum of the two previous numbers. Each successful trade in this sequence compensates for the loss from the previous two. This is in contrast to the Martingale system, where you can always count on one of two things: either the return of the initial profit, or the loss of capital.
- If you win, the bet does not change;
- In case of a loss, the bet increases according to the Fibonacci sequence: 1, 1, 2, 3, 5, 8, 13, 21, etc.
This strategy is a kind of compromise between the Martingale strategy and more passive techniques such as the pyramid betting system. But, at the same time, the strategy shows high efficiency and allows one profitable trade to cover the loss of two unprofitable ones at once, which is also quite good.
The Pyramid Strategy is based on the law of equilibrium, which states that after a series of failures, the probability of winning increases. The essence is quite simple – after each loss, the size of the bet is increased by one unit. After winning, the bet is reduced by one until it reaches the original bet. That is, you must bet more than you lost on the previous bet and reduce the bet when you win.
The advantage of this strategy over others is that the size of the bet grows in an arithmetic progression, that is, quite smoothly and without sharp jumps. In addition, the system is extremely simple, so it is suitable for beginners. The effectiveness of this strategy is slightly lower than the previous two, so the result of its work will be noticeable only during long trading periods.
All of the above strategies can work in the opposite direction, that is, depending on your preferences, you can increase the size of the bet both after a series of failures and after a series of wins. But do not forget that no money management system is capable of turning a losing strategy into profit. That is, when buying an option, you should already know the direction of the transaction, and competent capital management will help you get the most out of the trade you are making.
Differences between the real market and the casino
Many people still believe that there is no difference between the real market and the casino. This is argued by the fact that the number of factors influencing the formation of prices is allegedly too great to be predictable accurately. For the average person, this statement will be true, since he is unlikely to be able to predict price behavior in the future without any preliminary preparation. But there is a fundamental difference between the real market and the casino. A casino game is initially a game with a negative mathematical expectation, since the costs include the interest of the owner of the establishment. That is, the casino always wins, and the rest of the chances are divided equally between the players. On a real exchange, on the contrary, it is quite possible that everyone wins. Therefore, it is much easier to achieve a positive MO on the exchange.
And predicting the course of an asset is easier than where the ball will land on the roulette wheel.
So, if the roulette wheel excludes the possibility of systematic profit, then stable income is quite possible in the financial markets. It’s all about whether you consider yourself smarter than your opponents. In the case of blackjack, this is the casino, in the case of binary options, the broker. Casinos leave almost no room for maneuver, and create all the conditions to make almost any well-known strategy inapplicable.
Due to the seeming simplicity of binary options, there are misconceptions that binary options are the easiest and most affordable way to improve your financial well-being. Literally, the entire Internet is filled with “quick way to make money” ads. In fact, you need a pragmatic approach and strong endurance to be successful. All the same, the real quotes of the interbank market and world stock exchanges are hidden behind the chart window , and not an invented price series.
If you cannot predict tomorrow’s eur / dollar quotation , then I can reassure you – very few people can. Forecasting financial markets requires learning, which will take a lot of time and a serious approach to business. Of course, this is an order of magnitude more difficult than playing roulette, but it is quite possible. To do this, you will have to master the technical and fundamental analysis, study the pricing process and go through the creation of your own trading strategy. In this regard, poker has even more similarities to the exchange. And there, and there, certain strategies can give some advantage against other players. That is, as long as you play better than your opponents, you win. Just like when making a deal on the stock exchange, to win at poker you have to take into account many factors that affect the outcome of the game.
Let’s sum up
The casino always counts on the fact that in the long term you will lose money. When trading on the stock exchange, you yourself become a casino, and your first priority is to create an algorithm in which other players will lose. At the same time, a competent choice of a broker with favorable trading conditions can greatly increase the probability of winning. Therefore, do not neglect low commissions and high payout percentages – this is your immediate income. If you are not ready to take trading on the exchange seriously, the market will not give you any advantage over a traditional casino. This is a common misconception among people involved in gambling. All of them think that it is possible to earn stable income in the market without making significant efforts.
With all that said, binary options remain an excellent alternative to some expensive indices and stocks, allowing you to trade on rate changes without actually buying an asset. Predicting the direction of price movement will be a stumbling block on the path to stable and profitable trading, especially for beginners . Therefore, it should be borne in mind that the real market is hidden under the seeming simplicity of binary options.