Following on from our article about whether binary options are a scam, let’s investigate whether having a binary options system is both workable and profitable.
So here’s the thing – if your binary options broker is offering 70 percent profit on winning trades, can you devise a trading system whereby one winning trade will “pay” for all previous losing trades and then some?
You could employ a trading strategy whereby, after each loss, you increased your bet by an amount where the winning bet would “pay” for all previous losses and then some. But at only 70 percent profit, you would need to increase your “bet” by a minimum 2.35 times the previous one in order to win overall.
So now you need to decide what your first trade amount would be. For example, after 3 losing trades on a starting bet of $20, your 4th trade would be $261. But if you had started with $100 then you’d be risking $1300 on your fourth trade.
I suspect you’d be feeling a little jittery by then! If you started with only $2,500 trading capital and you lose this one, then your next trade will need to be more than your entire starting bank. If you’d started with $50,000 then you might not be so concerned … yet.
If you’re only starting off with $20 for your first trade, you then have to ask yourself whether the investment of time and patience, waiting for the right trade setup and realizing profits at 70 percent, is worth it to you.
So is binary options a scam or not? Looking at the above numbers, my conclusion is that, considering the absolute and inflexible nature of binary options in comparison to traditional options, it would not be a preferred trading instrument for me. There are so many more opportunities with traditional options.
Even if I was going to implement a money management system as described above, then I would be looking for a much higher dividend payout than $1.70 for a win. I would be better off picking the eventual winning horse in races only paying above $5.00 for a win, or a minimum $2.00 for a place, and doubling my bet each time until it pays.
At least then, my chances of profiting without wiping out my entire capital would give me more losing opportunities before the winning trade saved the day. But then I’d have to be good at picking winning horses.