Are Binary Options and options trading the same thing? What is the difference between binary options trading and real options trading?
What Is The Difference Between Binary Options Trading and Real Options Trading?
In the recent history of investments, there has been alot of hype products; bitcoins, spread betting etc but more recently and currently still the global hype in 2017 are what are known as "Binary Options". Binary options brokers employed the very best of internet marketing to the point where whenever you search for options trading, you are more likely going to see results for "Binary Options Trading" rather than real options trading. In fact, I see the disturbing sign of options trading dummies, complete beginner to the area of options trading and investing, (Read my Options Trading for Dummies Guide) are now thinking that Binary Options Trading is Real Options Trading as they are saturated with news, articles etc about Binary Options Trading and how people are making millions around the world trading Binary Options.
So, what exactly is the difference between Binary Options Trading and Real Options Trading? Here's an infographic summarizing the differences between binary options trading and real options trading. Please feel free to link to it from your site and link back please.
Note: Please feel free to share the above infographic on your website or blog to warn more people. Be sure to link back to our page!
Differences Between Binary Options Trading and Real Options Trading - Short Expiration vs Long Expiration
One of the biggest difference between Binary Options Trading and Real Options Trading is that binary options trading typically have extreme short expirations of even down to just 60 seconds while Real options trading has expiration as short as a week and as long as a year. This makes a massive difference in that you have time to properly analyse a trade and managing the trade along the way, giving time for the price of the underlying asset, be itstock or other assets, to actually move in your predicted direction. By having an extremely short expiration says that you are such an expert trader that from the moment you put on an options trade, prices can only directly and almost immediately move as you predict it to... something even seasoned professionals cannot guarantee. Professional real options trading is having about giving the underlying asset time to move in the predicted direction. Having extremely short expiration means that you are essentially putting on a 60 seconds electronic bet without substantial research behind each "bet". That makes the difference between gambling and investing.
Differences Between Binary Options Trading and Real Options Trading - Limited Profit vs Unlimited Profit
Another big difference between binary options trading and real options trading is that you can only win a limited amount of "payout" in binary options trading while when you buy a real options contract, the potential payout is unlimited. This means that in binary options trading, you typically win a fixed payout, typically 75% of what you put into the options trade, no matter how far the price of the underlying moves in your favor. However, when you buy a real options contract, there sky is the limit. As long as the price of the underlying stock keeps moving in your favor, the option will keep accumulating profits and so it is not uncommon even to see profits of beyong 1000% in real options trading while in binary options trading, you get your 75% even though you are an expert analysis and the price of the underlying asset moves extremely strongly in your favor. Some people say, in that case, just keep buying more binary options as the price moves up... well, the problem with that is that even in a strong uptrend (or downtrend) price don't go straight up (or down), you may be caught in one of those small 1 minute or 2 minute or even 5 minute pullbacks are not uncommon even in a strong trend and get your account wiped out on the losses and you typically lose more on a losing trade than you can win on a winning trade, which brings us to the next difference...
Differences Between Binary Options Trading and Real Options Trading - 85% Loss vs 100% Loss
In binary options trading, when you lose a trade, they actually give you back 15% of the money you invested with, making it a 85% loss while in real options trading, you can lose up to 100% of the money you put in, yes, the whole thing. At first, this may making binary options trading look very attractive versus real options trading until you remember the last difference, that there is a limit to the profit you can make on binary options trading which is almost always smaller than the amount of money you can lose. So, if you stand to win 75% or lose 85% in a 50/50 trade, would you win in the long run? Even though you stand to lose 100% in real options trading, two important differences make up for it; one is the unlimited profit mentioned above, potentially returning you way higher profits than the 100% loss and second, it can be sold to cut loss before you lose the whole thing! Which brings us to the next difference between binary options trading and real options trading...
Differences Between Binary Options Trading and Real Options Trading - Cannot be traded vs Can be traded
Binary options "trading" technically isn't trading at all. Trading means being able to buy AND sell. So when you buy something for one price and sell it for another, that's trading. However, in binary options trading, youcan buy but you literally cannot sell it to another options trader. Once you "buy" a binary option, you will have to hold it to its eventual outcome, there is no way to sell it to salvage any remaining value when things start to look wrong. So, there is no way to "stop loss" so as to speak. You either win or lose according to the criteria so there's no "trading" involved at all, only "betting". Real options trading on the other hand can be traded on the public exchange to another options trader or market maker anytime before it expires. So when things start to go wrong, you could actually sell it to salvage remaining value just like trading stocks. There is a real market with real buyers whom you are trading in and trading with in real options trading. Which brings us to the next difference...
Differences Between Binary Options Trading and Real Options Trading - Unlisted Instrument vs Listed Instrument
Another difference between binary options trading and real options trading is that Binary options, the hyped ones, do not really even exist. It's not a financial instrument that is listed on a regulated public exchange like a stock market or the forex market but exists only as a computer program you are placing bets on which is no different from an online casino or a game. Real Options Trading on the other hand trades a real options contract that is listed on a regulated public exchange and gets bought into your account as an equities asset when you buy real options. This means that in real options trading, you are actually buying a real options contract off the real stock market and owning it as an asset in a real equities account. You actually own an asset when you buy a real option but when you "buy" a binary options, its actually an expense item which you bought using your credit card just like game credits. Which brings us to the next difference...
Differences Between Binary Options Trading and Real Options Trading - Trading Against Binary options broker vs Trading against other traders
In Binary Options Trading, you are really trading only against the broker, or in more precise words, "betting" against the "banker". There isn't any market in which you are trading with other traders like in the stock market or the real options market. In real options trading, you are trading options contracts with and against other options traders and market makers. This means that you are able to buy AND sell the options contract that you own at any time you wish before expiration whereas in binary options trading, you won't be able to sell it once you "buy" it and is committed to hold it until one of the two possible outcomes. Of course, you aren't really buying anything in binary options trading as explained above, you are just placing an electronic bet on an electronic game.
Differences Between Binary Options Trading and Real Options Trading - No Real Underlying Asset vs Real Underlying Asset
Real options contracts allow you to actually trade the underlying asset that it represents. For instance a AAPL Call Option allows you to buy Apple Stocks at the strike price at anytime before expiration should you choose to do so and AAPL Put Options allows you to sell your existing Apple Stocks at the strike price. This shows that real options trading trades real options contracts that trades real securities in the real stock market. Whereas Binary options cannot be exercised to buy or sell anything. A Binary Call Option cannot be exercised to buy the underlying asset nor can a Binary put option be exercised to sell the underlying asset. Binary options only exist in their own digital form, which is why they are also known as "Digital Options", with no real assets behind it. Simply a bet on a bunch of moving numbers determining if you win or lose, again, no difference from an online casino.
Differences Between Binary Options Trading and Real Options Trading - Unregulated Brokers vs Regulated Brokers
Another big difference, and a rather major difference, is that most (if not all) Binary Options Brokers are usually unregulated brokers while real options brokers are regulated brokers. Regulation means that they are registered with the Securities and Exchange Commssion (SEC) if they are in the USA and is a part of an investor protection program such as the Investor Compensation Scheme or FINRA in the USA. These ensures that your money won't be lost through bankruptcy or fraud by the broker and that the broker is actually performing a real securities market service in the real stock market and not just an electronic game. Yes, in a real options trading account, you are actually protected by the regulation and the government such that if the broker closes down, you actually get back some, if not all, of your money. However, when you "invest" in an unregulated broker such as binary options brokers, your money is lost when and if the broker closes down. Which brings us to the next big difference between binary options trading and real options trading...
Differences Between Binary Options Trading and Real Options Trading - Ease of Depositing Money vs Difficulty in Depositing Money
Yes, it is actually hard to start depositing money to a real options trading account while its extremely easy to deposit money to a binary options account. Why is that so? Because real options trading involves working with a real financial institution with real responsibilities just like opening a bank account. That is why you would not be able to just "transfer money" using a credit card just like you can with binary options accounts. Real financial institutions are not allowed by law to accept money from a credit card because that would not be your own money, see? However, binary options brokers, being unregulated entities on the internet, is just like any ecommerce site, selling you online gaming credits, as such credit card payments are accepted and why they are growing so quickly due to the ease of payment.
Differences Between Binary Options Trading and Real Options Trading - Hard to Withdraw Money vs Ease in Withdraw Money
Contrary to the above difference, it is far easier to transfer your money from a real options trading account back to your bank account than it is to transfer your money from a binary options trading account back to your credit card or bank. Yes, in real options trading, its hard to deposit but easy to withdraw while in binary options trading, its easy to deposit but hard to withdraw. In Binary Options Trading, typically when you attempt to withdraw money back to your credit card or bank account, you will receive a phone call right away, promising you all kind of perks including extra credits if only you don't withdraw. Basically everything they can promise you to convince you out of withdrawing and to continue "trading"... exactly the same thing online casino sites do. Then, there are also many cases reported to the US Commodity Futures Trading Commission, CTFC (Read the full report by CTFC) of binary options brokers simply refusing to credit the money back if you insist on a withdrawal.
Differences Between Binary Options Trading and Real Options Trading - Conclusion
As you can see above, binary options trading is different from real options trading in so many ways. In fact, if I have to summarise the differences into a one word each difference, is that most binary options brokers are illegit while real options brokers are legit (please note that I use the term "most" because there are real binary options in forex trading but those are not the overly hyped unregulated ones that is so hot recently and which you would find almost instantly everywhere online in 2017. In fact, you would probably never have heard about the real binary options at all since I have never even seen them being advertised anywhere before.). The difference between illegit and legit is a big one. Real options trading actually gives you a real shot at making real money while most binary options trading deny you that ability and mostly made it all but impossible. I hope you have a good idea what the differences between binary options trading and real options trading in this free tutorial. To know more about why it is so hard to get rich trading binary options, please read my article on "Can you get rich trading binary options". You can also start learning about what REAL options trading is in our Options Trading for Dummies Guide! On top of that, this is actually the most dangerous time to be opening a binary options trading account and trading binary options! Read about Why This Is The Most Dangerous Time For Binary Options Trading.
