Recently I was researching a binary options broker (bnryoptions.com) and got on the live-chat line with a helpful representative, one who was clearly involved with the inner workings of the company (not just a hired agent to staff the chat line). Not only was this woman, Sue, very helpful when it came to answering my questions about her company, but she also was interesting to talk to. She had a lot of information to share about regulations, the industry at large, and trading. I noticed she was very eager to dispense advice to traders, and her advice was very sound. I thought it was refreshing to talk to someone who was up-front and urged responsibility. Most people in this industry will only tell you about what you can win, and not what you can lose. So I am going to share some of Sue’s insights and advice with you.
I’ll be frank here—Sue’s assertions about regulation were confusing to me. Almost everything I have ever read about regulation is confusing. To the best of my knowledge (and Sue’s), very few binary options brokers are actually regulated as such—maybe a handful out of hundreds which are out there. And as Sue points out, even regulated binary options brokers (usually regulated as some other kind of financial entity) can be untrustworthy.
So how do you decide which binary options brokers are trustworthy? It comes down to transparency, honesty, and reliability. Regulation is a good sign more often than not, but it is not a guarantee that your money is safe or that you are receiving great service. And if you find a company which is not regulated but which seems to do everything else right, that does not mean that you should not trade with that company—they may be one of the good ones.
Apparently a lot of credit card fraud schemes operate out of the US. Believe it or not, that is one of the many reasons that a lot of brokers steer clear of US clients (or ask for wire transfer only). That and of course the murky regulatory waters, which are confusing to navigate.
On out-of-money rewards:
Not all binary options brokers offer out-of-money rewards (bnryoptions.com does not, for example). A lot of brokers are attracted to out-of-money rewards because they provide a feeling of security. As Sue points out though, real money management comes down to the risk that you calculate. (Learn how here)If you are not guaranteed 10% back, just recalculate your investment and stake less. Plus, if you find a broker that offers smaller (or no) refunds but higher payouts, mathematically it is identical.
The bottom line here is that it is your responsibility to figure out how much money you are staking and also how much money you have the opportunity to win. No amount of 10% refunds are going to spare you from blowing your account if you don’t use sound money management principles and make reasonable wagers. Risk no more than 2.5-5% of your account on each of your trades and keep your risk small. How much you win is secondary—if you protect yourself from losses, your profits will build up on their own. Losing money makes it far harder to make money. Don’t be afraid to break even now and again. Do look for higher payouts, but understand that ultimately your success is going to have more to do with your trading method and your win statistics than anything.
I pointed out to Sue that most customers in the binary options industry are gamblers—whether they recognize themselves as such or not. Sue responded by saying, “It’s moving that way, or should I say being marketed more and more that way.”
I thought that was a very interesting and revealing response. I have to agree with her on that one. Binary options are a legitimate trading vehicle, like many others. The reason that they appeal to gamblers so much is not because they are not suitable for serious traders—it is simply because it is easier to profit off of gamblers (more on that later). If you choose to be a serious trader and not a gambler, you give yourself a chance to profit.
On demo accounts:
Have you ever wondered why so many binary options brokers which offer demo accounts require that you first make a deposit into a real account before you can demo test? There is actually a good explanation for this. As Sue points out, her company used to offer a no-deposit demo account. The problem however is that so few binary options brokers offer demo accounts at all that the ones that do offer no-deposit demo accounts are often flooded by clients of other brands who want to test, but have no intention to deposit money or trade on the site where they are testing.
You can’t really blame people for doing this (in fact, I have even advised it myself), because testing is a critical step in becoming a profitable trader. It does take up a lot of site resources, however, and I also cannot really blame brokers for not wanting to pay for those resources. When you see deposit-required demo accounts, it is usually because a broker wants to ensure that the traders using their site resources are actually likely to become customers. It is not necessarily an attempt to trap you into parting with your money.
However you can still get a free demo account here.
On unique advantages of binary options trading:
As somebody with a background in Forex as well as a large working knowledge of binary options, I wanted to know what Sue had to say to FX traders who are curious what the advantages of binary options trading are. A Forex trader will generally point out that it is easier to control FX trades, after all.
Sue replied that, essentially, binary options trades are much easier to place, but are otherwise nearly identical when you are dealing with currency pairs. There is no need to manually set a stop loss, and there is no spread and that binary options trading is good for hedging. She also pointed out that the early close feature is available (not on every broker’s website, but on many of them) to exit whenever you want, just as you would if you were trading FX. “Most traders don’t use the risk management tools we offer, except the ones that win,” she added.
Sue says that a lot of binary options traders are more than willing to use trade signals and auto-trade, to give up control instead of use site features provided by brokers which give control to the trader. “Do they have any idea how the signals are generated?”
I would not say that signals are necessarily useless. Some signal services really are helpful and can assist you with spotting good trade entries. I do however advise that new traders in particular avoid relying too heavily on them, and that auto-trade be avoided. When you use auto-trade, you fall out of touch with your own trading. As far as the signals go, it is best to go with signal services you understand. If you know how the signals are generated, it is easier for you to fit them logically into a comprehensive trading plan—and also to understand why they may stop working when something in the market changes. What you should not do is expect someone else to hand you success on a golden platter. That just never happens.
On realistic expectations:
Finally, since I needed to get going, I asked Sue if she wouldn’t mind answering one more question. I asked her, “If there is ONE thing you really want people to know about this industry, what would it be?”
I half-expected her to respond saying something about brokers and scams, but she didn’t. The easiest way to lose money in this business is to go about trading the wrong way. It turns out that you are more likely to rob yourself than anyone else is. Here was Sue’s answer:
“You can win money but need to learn to trade, manage risk and take the long haul to build your account up slow and consistent. There’s no short cut – many people think it’s easy money – couldn’t be further from the truth. Over 80% lose everything. But that means 20%, the smart ones, win,” and adds that the 80% “just drive me mad with unrealistic expectations. All they want is a quick fix; don’t want to put the work in.”
So there you have it. That is advice from an actual binary options broker. Sadly, most of the brokers that are out there do everything they can to encourage that 80% to part with their money. I am actually guessing that estimate is a bit conservative. I am thinking more like 95% of traders will actually ultimately fail, and about 5% will go on to win. And I absolutely agree with Sue. Those 5% will be the ones that use the risk management tools provided to them, stay involved with their trading, use sound money management techniques, and are willing to take their time and work hard.
The fact is, most of the people who hear this advice are not going to listen to it. Which is why there is really no reason for a broker to lie to would-be traders. Whether or not you market to gamblers, you will find gamblers aplenty who are willing and ready to part with their hard-earned cash. If however you are one of those 5% who are willing to put in the hard work, you can make it in binary options trading. You may even become a professional someday. Are you ready?