Binary Options and Casino - what’s the difference?

Hello, my friends, traders! Very often you can hear “Binary Options is a casino.” Is it so? I tried to identify similarities and differences between the casino and binary options, compared the expectation and probability to quit with a profit. Also considered typical casino strategies used for the binary options.

Binary options and casino

Binary options is a relatively new financial instrument of the retail market, attracting a lot of attention from the people who were not interested in trading at all before. At the same time, many people are still very skeptical about binary contracts trading, 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, which is selected by PR departments of companies. On one hand, undoubted advantages of binary options include the ease of transactions and a large variety of types of contracts. That is, you do not need to study additionally to trade binary options. Brokers provide the necessary minimum to start a financial markets trader career - the logical separation between contract types and intuitive trading process that does not cause too many questions. Also, when compared to the stock options, the retail market has a number of obvious advantages.

The fact that the affordable and highly profitable method of investment attracts gamblers who do not have previous experience of stock trading, and wish to get rich as quickly as possible. Typically, these people are trying to use the casino principles in the market, but of course, such endeavors don’t lead to anything good. Do not forget that when binary options appeared from the real exchange asset, the casino was originally created for the purpose of earning on a customers’ loss - this is the fundamental difference.

In contrast to the casino, the binary options market can be controlled. Large brokers may have several controllers, each of whom monitors the implementation of the complaints and claims against brokers. The complaint to the relevant regulatory authority can save you from a complete loss of funds and unfair broker work, what cannot be done in the online casino. It is impossible to return the money from the casino, and the companies work on the verge of breaking the law.

The probability of gains

To determine what is similar between the binary options trade to a game in the casino, you must first understand how the roulette works.

How the roulette works

Let’s suppose, we’ve put on red. When choosing red, we have 18 winning points, which means that when a number from 1 to 36 appears, we’ll have a 50% chance of gain. But, if we take into account that the roulette has also zero, then we have 18 chances out of 37, so the probability is 48.65%. It means that without using any strategies, we will always lose our money.

 

At the same time, success in the financial markets, or in poker will largely depend on your perception. If you regard trading as a game, then your trading results will not differ greatly from a series of transactions, opened at random. Taking into account trading costs, the expectation of such trade will be negative, which makes the result essentially indistinguishable from the roulette game.

In any case, in binary options trading in more than half of the cases will be profitable, otherwise, you will not earn anything. The required percentage of profitable trades to cover the loss can be calculated by a simple formula: 100% / (100% + 80%), where 80% - the percentage of contract payments. That is, if in the event of winning 80% of the transaction amount of a binary contract is paid, then in order to achieve at least break-even, about 56% of the transactions should be closed in with profit. In other words, in order to trade binary options with a profit, you have to guess the direction of at least 6 out of 10 cases. Each broker has different charges and may vary depending on the time of expiration and the type of trading instrument.

The use of the casino strategies on binary options

Despite the fact that winning at roulette is random, and the probability is not in favor of the player, using capital management techniques you can momentarily increase the chance of winning. Different betting systems were invented to allow the use of this trading capital more efficiently.

There are several basic strategies for financial management, which were invented long before the formation of modern stock exchanges. Each of the systems in their own way interpret the theory of probability, making possible to convert a series of unprofitable trades into profit.

Martingale Strategy

I would like to begin with probably the most well-known strategy. To avoid losses, the Martingale strategy means doubling the bet after every loss. The series continues doubling, until you reach the profit corresponding to the first rate. The next bet is of the minimum size again. If you win the bet is not increased. When trading by this strategy a fixed positive expected value is achieved, as the entire loss is more than covered by new transactions.

To summarize:

• If you win the bet does not change;
• If you lose you double the bet size to cover a series of failures + profit from the last bet.

For example, you bought an option worth $100. In case of failure, every next bet is doubled. Thus, it is possible to cover the results of the previous series of losses, and even earn some money.

 

Provided that you have an unlimited deposit, strategy can be considered a win-win strategy. The system, generally, does not take into account any limitation of losses - this is its main disadvantage. In fact, such a strategy is quite effective in roulette, and is able to make a profit within a short time. But, given the fact that the theory of probability is initially working against us, and that today all gaming tables have a limit on the maximum bet size, the sense of using this strategy to earn money in the casino is decreasing.

Fibonacci and Pyramid Strategies

Yet, for many people, the Martingale method is too aggressive, because the size of the bet in the event of losing the series can immediately increase in several times. That is, being wrong in one bet, you can easily lose all your savings. Fibonacci strategy is invented for those who do not have bottomless pockets.

The system increases the bet size more smoothly and gradually, in accordance with the proportions of the Fibonacci sequence. As we know, each successive Fibonacci number sequence is the sum of the two previous numbers. Each successful transaction in this order compensates the loss from the previous two in that order. This is the difference to the Martingale system, where you can always count on one of two things: either the return of the initial profits or capital loss.

To summarize:

• In case of a win the bet does not change;
• In case of 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 pyramidal betting system. But, at the same time, the strategy shows high efficiency and allows a profitable trade to cover the loss of two losing ones, which is also very good.

Pyramid’s strategy is based on the equilibrium law, which says that after a series of failures probability of winning increases. The system is quite simple - after each losing bet the size increases by one. After winning the bet size is reduced by one until it reaches the original bet. That is, you must bet more than you lost at the previous bet, and reduce the bet after winning.

 

The advantage of this strategy over the others is that the bet size increases in an arithmetic progression, so it is smooth enough and without sharp jumps. In addition, the system is very simple, so it is suitable for beginners. The effectiveness of this strategy is somewhat lower than the previous two, so the result of its work will be noticeable only in long periods of trade.

All these strategies may work in the opposite direction, that is, depending on your preferences, you can increase the size of the bet after a series of losses, or after a series of wins. But do not forget that there is no money management system is able to bring a losing strategy into profit. That is, when you buy an option, you should already know the direction of the trade, and competent capital management will help to get the most out of trading.

Differences between the real market and the casino

Many people still believe that there is no real difference between the market and the casino. The reason is that the number of factors influencing the prices formation is allegedly too big to be predicted exactly. For the average person this statement is true, since it is unlikely to be able to predict the prices behavior in the future, without any prior preparation. But there is a fundamental difference between the real market and a casino. The game in the casino was originally a game with a negative expected value, as the costs include the interest of the owner. That is, the casinos always win, and the other chances are equally divided between the players. On the real exchange, on the contrary, it is quite possible situation where everybody wins. Therefore, it is much easier to achieve positive expected value on the stock exchange.

It is also easier to predict the asset value then when using the roulette ball.

So, if roulette eliminates the possibility of systematic profit, it is possible to get stable earnings in the financial markets. The thing is whether you think you are smarter than your opponents. In the case of blackjack it is the casino, in the case of binary options – the broker. Casino leave almost no place for maneuver, and creates all the conditions to make inapplicable almost any commonly known strategy.

Because of the apparent simplicity of binary options there are misconceptions that binary options is the easiest and the most affordable way to improve your financial well-being. Literally, the entire Internet is full of advertising “fast earnings method.” In fact, to succeed you need a pragmatic approach and strong endurance. Still, there are real interbank and international stock exchanges rates behind the chart window, rather than the fictional price range.

If you can not predict tomorrow’s quotation of euro to dollar, I can reassure you - very few people can. You need to learn forecasting on financial markets, which will require a lot of time and a serious approach. Of course, it is much more complex than the game of roulette, but it is real. You will need to master the technical and fundamental analysis, to learn the pricing process and go through the creation of your own trading strategy. In this regard, poker has even more in common with the stock exchange. In both some certain strategies can give an advantage against other players. That is, while you play better than your opponents - you win. Same way as in the transaction on the stock exchange, you have to take into account many factors that affect the outcome of the game to win in poker.

Summarizing

Trying to win in the casino always means that in the long run you will lose money. When trading on the stock exchange, you become a casino by yourself, and your first task - to create an algorithm according to which the remaining players will play. In this case, the right choice of a broker with favorable trading conditions can greatly increase the probability of winning. Therefore, we should not neglect low commissions and high payout percentage - it’s your immediate income. If you are not ready to go to trade on the exchange with the utmost seriousness, the market will not give you any advantage against the traditional casinos. This is a common misconception of the people engaged in gambling. All they think that on the market you can consistently make money without putting much effort.

With all said, binary options are an excellent alternative to some expensive indices and stocks, enabling to trade on price change without the actual purchase of the asset. Predicting the direction of price movement will be a stumbling block on the path to a stable and profitable trade, especially for beginners. Therefore, it is necessary to take into account that under the apparent simplicity a real binary options market is hiding.

Take care, Michael

ForexTraderPortal.com