Binary Options Trading: It’s Not a Gamble Are binary options and gambling the same thing? Despite the common belief that binary options is a gamble, the answer is no. Saqib Iqbal Author Hannah Jones Editor 8 min read Published: October 31, 2017 Updated: February 10, 2023 Views: 154Content What is Trading? What is Gambling? How to Make Sure Your Trading Isn’t Gambling FAQsTrading and gambling are quite different. That said, there are traders who gamble their money away, and it’s important we don’t fall into that trap.So let’s look at how trading and gambling can be different, and most importantly, how to make sure you aren’t actually gambling when you place trades. Here’s how to do it.What is Trading? Trading, at least for those who are successful at it, means working within a system that has been proven profitable over time.Successful traders take an idea and form it into a strategy. The strategy tells them when they are going to enter trades and how much they can invest in each trade.The strategy outlines what conditions must be present in order to buy or sell a binary option.How much a trader can invest in each trade is often a percentage of their total account, such as 1% or 3% of the total account balance. That way, when losses do occur, the account value doesn’t drop much.The strategy is then tested by looking through prior trades and adding up profits and losses. Knowing how much you invest in each trade makes this process more accurate, since you can add up exactly how much you would have made over the last week, month, or year.This is called backtesting, and is the cornerstone of successful trading. While not every system that worked in the past will continue working in the future, if a strategy has never worked in the past we can be pretty sure it won’t work in the future. In other words, successful traders “know” that their strategy works. They know this because they have verified that it is successful.Anyone, including you, can do this. Come up with criteria (or use a strategy discussed on this site) that tells you when to enter a trade. Then, pull up a chart and look for when those criteria occurred in the past. Look back at least 50 trades, 100 is better. Add up all your profits and losses on those trades.You now have a pretty good idea if that strategy works or not. If it didn’t produce a profit, look for ways to improve the criteria. Keep refining it until it produces a nice profit. This is essentially how all strategies are developed.With trading, you may not know whether each trade will be profitable, but if you have tested your system, you have a pretty good idea that it is likely to be profitable over the next 10 or 20 trades. This is called expectancy; it means that for each trade we know the odds are in our favor for making a profit. This varies drastically from gambling, which has a negative expectancy!Further reading CMC Markets - Advanced Trading Platform Review GKFX - Feedback and Review of Direct ECN Forex and CFD Broker OvalX Review - What You Need to Know (formerly ETX Capital) MetaTrader 4 Review: A Free Comprehensive Trading Platform for Experts and Novices What Is Smooth Love Portion, and What Can You Do With It? Orbex Broker OverviewWhat is Gambling? Gambling is when we don’t know the financial outcome over multiple trades, or the odds are against us but we play anyway hoping to get lucky.If you step into a casino, your odds of winning at blackjack are 42.22% on a given hand. The dealer has a 49.1% chance of winning, and there is a 8.48% chance of a tie. If you play a strategy, some of the house edge (their advantage over you) can be reduced.For most people, going into a casino and playing blackjack will result in an overall loss if you do it multiple times. You may win every once and awhile, but the more hands you play the greater the odds that the casino will eventually win your money.Gambling is when you know the odds are against you, and that the casino has a higher chance of winning – but you do it anyway. This may be either for fun or because you hope to get lucky on the first few hands and then cash out your winnings.Gambling can also be when someone trades or plays a game without knowing the odds. Taking a random trade because you think the price will go up is a gamble. The idea isn’t based on something tested. Above, I talked about how a strategy is tested, so that we know it is profitable over multiple trades. Random trades which aren’t based on a strategy are untestable. Thus, they are gambles.Further reading BINBOT PRO REVIEW 2023: SHOULD YOU SIGN UP WITH THE BROKER? OANDA - Everything You Need to Know Before You Trade MetaTrader 4 Review: A Free Comprehensive Trading Platform for Experts and Novices Full Review of Spectre.ai: Low-Risk, (Decentralized) Broker IG review 2023: should you sign up with the broker? OptionsHouse by E*Trade - overview of the trading platformHow to Make Sure Your Trading Isn’t Gambling Hopefully you now know how to make sure your trading isn’t gambling. Create a strategy and then test it before trading.If you’re unsure how to create a strategy, you don’t need to create your own. There are loads of strategies out there that you can try for yourself. Many are shared on this website:Long Island Pattern3 Rising Valleys/PeaksFractal ReversalPrice ChannelBefore trading any strategy, check to see if it is profitable. You can do this by looking for the signals on historical charts. For example, if you are trading binary options, open up a chart on the time frame you want to trade on. If you’re trading 1-minute options, use a 1-minute chart. If you are using 5-minute options, use a 5-minute chart.Then, mark on the chart each time the strategy produces a trade signal, and mark where the price is when your option expires. If you are trading 5-minute options, note the price five minutes later and record your result.You can decide how much you will risk on each trade, and you know how much the broker pays out for winning trades. When you add it all up, the result may look something like this if you’re investing $20 per trade and the payout is 85%.+$17-$20+$17$17-$20+$17-$20+$17+$17+$17Over 10 trades the strategy won 7 trades (70% win rate) and the overall profit was $59. That’s a good strategy. Ideally, test the strategy over 50 trades or more to get a good sense of how it performs. See how this is very different from gambling?You are trading with a strategy that you already know performs well. That’s the exact opposite of gambling, where you don’t know the odds or the odds are poor but you hope to get lucky.Further reading Option Robot Review - The Best Auto Binary Trading System? ROBOFOREX – OVERVIEW OF THE GLOBAL FOREX BROKER Forex trading made simple – what is a Pip? Join the Academy! GKFX - Feedback and Review of Direct ECN Forex and CFD Broker Markets.com Reviews 2023: Is it The Most User-Friendly Trading Platform? Binarium Review and Feedback on the Binary Options Broker FAQsWhat is backtesting?Backtesting is seeing how a strategy performed in the past. It doesn’t guarantee the same results will occur in the future, but it is useful for seeing if a desired method is worth pursuing.What is binary options trading? With binary options, you buy a call or put depending on whether you believe the price will be above or below a specified price at a precise time in the future. If you are correct, you receive a payout. If you are wrong, you lose the amount invested in the trade.How to make money binary options trading?Making money with binary options, or any trading instrument, requires a strategy. A strategy tells you when to enter a trade, when to stay out of trades, and how much to invest in the trade. Strategies can be backtested for profitability, and then traded in real-time to make sure they work as expected.What is the difference between binary options and day trading?Binary options are a trading instrument, like stocks, forex, futures, or bonds. Day trading is a trading style where trades aren’t held overnight, and positions are generally only held for a few minutes. Binary options can be day traded, and often are.What is binary options trading in forex?Binary options are a trading instrument. Forex is a market. Therefore, you can trade binary options based on how forex prices move.Is binary options trading safe?All trading involves the risk of loss. To minimize the risk of losing over many trades, utilize a tested strategy.You can test a strategy based on how it performed in the past (called backtesting, mentioned earlier) which provides an idea of whether the strategy tends to produce profits overall, and not losses. Remember to choose a trustworthy and regulated broker, as regulated brokers are much less likely to be involved in scams.Is Binary Options Trading Gambling? Final ThoughtsTraders can make money if they’re using a tested and proven system. When learning a new strategy, test it on your chart. See how it performed on the last 50 trade signals (when the criteria told you to enter). If the strategy is profitable, then you have moved out of the world of gambling and into trading.Gambling is taking random trades and hoping they work out. There is no defined strategy, and the method for selecting trades is untested. To trade successfully, develop a strategy (or learn someone else’s), test it, and then stick with it. If it doesn’t perform as well as you want, refine the strategy so it produces better results. Consistent learning and testing is the path to consistent profits.Further reading What Is Flare Network and What Does It Do? DARWINEX IS A WARM CORNER FOR INDEPENDENT TRADERS AND INVESTORS CumRocket, The Naughty Boy Of Cryptocurrencies CLM Forex (Core Liquidity Markets) - Broker Review How To Identify Stocks Gaps Properly? (The 4 Gap Types) Finrally binary options review 2023: should you sign up with this broker?