A common misconception about binary options is that they resemble gambling. This misconception has arisen in large part due to the fast-paced nature of this kind of trading coupled with the fact that a lot of unsuccessful traders essentially guess the future outcome of a trade and do not take the time to develop of robust and repeatable strategy. In this article we examine how investors should conduct themselves in order to avoid techniques that resemble gambling.
Begin with a sound strategy
Traders who want to avoid investing in a way that resembles a casino should start by identifying a robust, repeatable strategy that they commit to following regardless of market conditions. People who just trade making guesses might as well play rules, but people who follow a carefully defined strategy find themselves in a much stronger position to make informed investment decisions.
As far as determining which strategy is right for you, it depends in large part on your skill-set and interests. Some investors prefer to pursue technical strategies, which involve analyzing historical price movements to make conjectures about the future price of an underlying asset. Many respectable and highly successful investors pursue such technical strategies. Other investors adopt a more fundamental approach, which involves analyzing a company (or other asset) fundamentals in order to spot deviations between the spot price of an asset and the fair value of that asset. Alternatively, some investors prefer to pursue a combination of technical and fundamentals-based approaches, alternating between the two as market conditions change.
Regardless of the strategy that you pursue, the first step to ensuring that your approach does not resemble gambling is to ensure that you are investing in accordance with a well-defined strategy, not merely making guesses about the future direction of an underlying asset’s price.
Trade longer-term options
Short-term options, such as those lasting 60 seconds before expiry, are a relatively recent innovation. While they suit some investors, they are not generally suitable for investors who seek to rely on their skill rather than blind luck. The short-term horizon is not very well accommodating of most conventional strategies, so investors who want to avoid trading in a way that resembles gambling are generally betteroff sticking to longer-term options. This is particularly the case when your strategy is one that involves a significant amount of fundamental analysis.
Follow market developments closely
Investors who want to avoid trading in a way that resembles gambling can follow-market developments in order to make more informed investment decisions. By reading the financial press and by subscribing to various analyst reports, investors can gain better insight into what is going on in the financial markets and can ensure that all of their investment decisions are shaped in part by the news that is having an effect on asset prices. For example, by staying on top of geo-political developments, investors can make more informed decisions when dealing with currencies and commodities, two asset classes which are highly exposed to changes in the geo-political context.
Trading does not resemble gambling unless you doing it in an uninformed way and rely purely on luck. By crafting a repeatable strategy, by focusing your efforts on longer-term contracts, and by following financial news sources in order to stay on top of the latest market developments, you can ensure that your decisions are underpinned by a robust decision-making framework rather than being based purely on guesswork.