Binary Options Unmasked by Anna Coulling

Binary Options Unmasked by Anna Coulling

Chapter One
The Binary Battlefield
To turn $100 into $110 is work. To turn 100 million into $110 million is
inevitable
Edgar Bronfman (1929 - 2013)
In many ways, this is perhaps the most difficult chapter to write, as the world
of betting and trading move ever closer with a consequent blurring of the
boundaries. And indeed may be one of the reasons you have purchased this
book, as you would like to understand and clarify the differences between
these two worlds. However, understanding the differences and where these
boundaries are drawn, is paramount in having a clear view of where one
stops, and the other starts. Binary options now seems to be the battlefield on
which these two opposing forces face one another.
My purpose in writing this book is not to come down on one side or the other.
My aim is to try to highlight what I believe are the pros and cons of these
instruments. To consider both sides, and from there to draw conclusions on
the best trading strategies to adopt. By the end of the book, I hope you will
have a balanced view with which to make your own decision.
We are all different, with varying risk tolerances. What is high risk for one
person, may be low risk for another. All I can do here is to present the case,
both for and against binary options, and to consider the alternative ways to
use them, of which as you will see there are many. But as with any new
approach to financial trading, if we can understand the instrument’s strength
and weakness, then we can make balanced decisions on the best way to use
them.
Understanding the odds and probabilities will also help you to assess and
quantify the risk in using binary options, as well as other instruments.
Speculating and investing, by their very nature carry risk. It is for us as
traders, to quantify these risks and to make our own decisions, according to
our own risk appetite. The issue with the world of binary options, and here let
me refer to them in the broader context of ‘binary trading’, is the boundaries
between sports betting and financial trading are now very blurred indeed. To
the extent that even those involved in the financial world, including the
media, seem to be confused.
The forums too reflect this confusion with strongly held views, similar to
those between technical and fundamental traders, with neither able to see the
other’s point of view. The same is true here. Mention the word ‘binary’ in a
trading forum, and instantly a heated debate will ensue. One side will label it
betting, short and simple. The other will argue it is trading, and never the
twain shall meet.
So, in order to bring some clarity to this debate let me start with the word
binary itself, which seems to be the catalyst for so much argument and
confusion.
In the nineteenth century the word ‘gay’simply meant happy, joyful, carefree,
and was an adjective. During the course of the twentieth century the meaning
of the word changed completely, not only in the context of everyday
language, but also in its use as a noun. And this example, in many ways
highlights the issues surrounding the term ‘binary option’. It is, after all just a
term with which to describe a trading instrument, and in many respects we are
simply arguing about semantics.
Therefore, let me draw a line in the sand.
Whether the instruments are referred to as binary options, binary bets, fixed
odds bets, fixed odds, binary betting, binary trading, fixed odds trading, or
digital options, all of these ‘definitions’ have two things in common:
Your risk is always limited and can never be exceeded
Your profit is always limited and can never be exceeded
The above statements are not to be confused with percentage returns. These
are the numbers you will often find quoted as part of the marketing message.
Whilst the percentage returns can vary, and do, the underlying risk/reward
profile remains constant.
Could the definition above be considered radical or innovative? Any trader or
investor worth their salt will limit their risk. Only a fool or gambler will trade
with unlimited risk. But risk can be limited in many ways.
In the financial world, a stop loss is perhaps the most obvious, taking us out
of the market if a position moves against us, thereby protecting our greatest
asset, namely our trading capital. We can limit loss by hedging in other
markets. We can also limit loss with conservative trading strategies using
options, and finally one could even consider limiting loss as the maximum
invested in a share or stock.

Binary Options Unmasked by Anna Coulling