What is a binary option? Between real investment and high risk

Many investors are looking for new ways to generate income from the financial markets, and in recent years, the product that has gained more attention is Binary Options, which has a significantly different structure from traditional Forex trading. This article will explain the details of this product and how it differs from other investment tools.

Binary Options: Meaning and How It Works

Binary Options are contracts of a certain type that offer a “win or lose” return. That is, investors must predict whether the price of the underlying asset ( such as currency pairs, commodities, or stock indices ) will move in a certain direction within a specified time frame.

A key feature of Binary Options is the very short expiration period, ranging from 1 minute, 5 minutes, up to 15 minutes. The payout structure is fixed—if the prediction is correct, the investor receives their initial investment back plus a return of 70-85%. If the prediction is wrong, the entire investment is lost.

How to Choose Price Direction

Traders can open positions in only two ways:

Call Option – This choice is suitable when you expect the price to rise. If the actual price exceeds the opening point, the option will be In the Money.

Put Option – Use this when you expect the price to fall. If the price is below the opening point, the option will be In the Money.

Real Trading Example

Suppose you trade GBPUSD when the current price is 1.3902. You believe that in 5 minutes, the price will go higher, so you invest $100 in a Call Option.

Scenario 1: Correct Prediction
After 5 minutes, GBPUSD closes at 1.3920 ( higher than 1.3902 ). The option will be In the Money, and you will receive your full amount $185 ( plus a return of $85$100 .

Scenario 2: Incorrect Prediction
GBPUSD closes at 1.3885 ) lower than 1.3902 (. The option will be Out of the Money, and you lose ) the entire amount.

Binary Options: Gambling or Investment?

This question depends on your trading approach:

If you are making random predictions based on emotions without market research, money management, or a plan, then yes, this is equivalent to gambling.

If you have a strategic plan that involves calculating risk/reward, managing your capital carefully, and following a clear strategy, then it can be viewed as a high-risk investment.

Legal Status and Regulation

In Thailand, there is no law supporting Binary Options trading, which means investors must bear the risk with the intermediary. If issues arise with the broker, legal action must be taken directly against the foreign company, which can be costly.

Internationally, the situation is as follows:

Australia – ASIC has banned retail investors from trading since May 3, 2021, because only 20% of investors can profit from this instrument.

United States – The FBI has found that most websites offering Binary Options are fraudulent.

European Union – ESMA issued a regulation banning marketing and selling to retail investors since March 23, 2018.

Belgium – Trading has been prohibited since August 2016 due to fraud risks.

Canada – Canadian Securities Administrators prohibit advertising and trading options less than 30 days old.

Israel – The Securities Authority classifies Binary Options as gambling, not investment.

Comparing Binary Options and Forex

Both tools are popular among traders, but how are they similar and different?

Similarities:

• Both can be traded online
• Require a small initial capital
• Allow speculation on both upward and downward movements
• Have the potential to generate significant profits when predictions are correct

Differences:

Trading Timeframes

• Forex: Open 24 hours, 5 days a week, across global financial centers
• Binary Options: Depends on the trading hours of the underlying asset

Instrument Maturity

• Forex: No expiration date; traders control from seconds to several months
• Binary Options: Limited lifespan of 1-15 minutes, chosen at the start of trading. Some brokers allow Rollover but require additional investment.

Volatility and Risk

• Binary Options: Short-term volatility has less impact; profit/loss is predetermined from the start
• Forex: High volatility directly affects profit/loss; the entire account can be lost

Profit Potential

• Binary Options: Generally offers 50-80% return on investment, no leverage
• Forex: Leverage can be used; returns up to 200% or more, but with higher risk

Which Trading Method Should You Choose?

Choose Binary Options if:

• You prefer clear and fixed risk
• You can win about 80% of your trades
• You like short-term trades with automatic position closing

Choose Forex if:

• You seek higher returns
• You are willing to accept higher risks
• You want flexibility in managing positions
• You can profit even with a lower win rate

Summary

Binary Options is a unique investment tool characterized by simplicity in prediction but high risk. Success in trading this product depends on education, discipline, and good money management. New investors should understand the differences between Binary Options and Forex wisely and select the tool that matches their trading style, capital, and risk attitude before starting real trading.