Binary Options: Business or Entertainment?
Have you been thinking about trading binary options, only to have someone you know tell you, “That’s just gambling. Do that and you’ll lose money?” If so, you may have started having doubts about trading, and you might be wondering whether you are doing the right thing by opening an account or not. Binary options are somewhat unusual in this respect, since they exist at a juncture between business and entertainment. They are not 100% one or the other; they are a little of both, and which one dominates depends more on the trader than the activity itself. Ultimately, whether you are a gambler or not determines whether binary options is gambling or entertainment.
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A surprising number of people have no idea whether they are gamblers or serious traders. This may sound peculiar, but think about the way that binary options is marketed. These brokers couch their products in fairly nebulous terms, promoting their services as both fun and profitable. This is because they have a wide range of customers. The result of combining entertainment and business language is often confusion for a large swath of those customers, however, who do not understand their own motivations.
If you have not thought in depth about your own motivations, you cannot make the most of trading. In fact, the more confused you are about your own reasons for trading, the more likely you are to make bad trading decisions which could cost you money. Let’s look at several different types of traders based on their behavioral patterns. See if you can identify which category you fall into.
You may be a serious (professional) trader if …
- You carefully calculate the risk associated with every trade, and you always risk the same, consistent amount. You do not risk more on trades you are “more confident” about, because you only ever take trades you are the most confident about.
- You make trades based off a specific and consistent system of proven strategies.
- You have proven the strategies you use through extensive testing (without investing real money).
- You only invest real money once you have learned that something works in demo.
- You do what you can to mitigate the effects of your emotions when you trade.
- You do everything you can to introduce order into trading and remove chaos.
- You treat trading like a business, and are always learning new things and making improvements to your trading. You have a regular schedule, balance trading with the rest of your life, and have well-established goals.
These are the actions of a professional trader, or a trader who may one day become a professional. A trader who reduces risk exposure and the effects of chaos is giving himself an edge. That edge makes the difference between winning and losing over the long term.
You are probably a gambler if …
- You do not precisely calculate how much you are risking on each of your trades, and/or you risk arbitrary amounts of money.
- You risk more money on trades you feel “more confident” about.
- You follow your “gut instinct” when placing trades, or you place a trade because “you just know” that something is going to happen.
- You enjoy the thrill of emotions associated with winning and/or losing trades—especially when large sums of money are involved.
- You like the idea of trusting in Lady Luck to bring you profit.
- You do not follow a sophisticated and exact system for placing your trades.
These are gambling behaviors because they place you entirely at the mercy of chance. They do not regulate your behavior or emotions, and do nothing to reduce your exposure to risk. A trader who gambles is concerned only with short term profit, not long-term possibility. Gambling is not by itself a negative behavior, if you acknowledge that gambling is a form of entertainment, and not business. It can become a negative behavior if it becomes an addiction.
You are a problem gambler if …
- You put more money into your trading account than you can afford to play with, especially if that money is needed for essentials (paying the bills, for example).
- You shy away from questions about your trading, especially questions from family members who rely on you for their financial needs. You refuse to be accountable for your actions, including to yourself.
- You do not know how much money you have lost to date on binary options.
- You are constantly trying to “get back” at the market.
- You believe that you are not a gambler, despite engaging in repeated gambling behavior patterns.
The number one thing that makes somebody a problem gambler is dishonesty. When you refuse to acknowledge that you are a gambler, and instead dress yourself up in your mind as a professional trader, you are setting yourself up for terrible losses. Trading can be fun, and there is a reason that entertainment is part of the binary options world. A lot of people enjoy gambling, but smart gamblers never mistake themselves for serious traders. You can gamble without losing control of yourself by staying honest and responsible.
If you do want to trade professionally, the worst thing you can do is trade like a gambler. If you find yourself engaging in gambling behavior, stop what you are doing and write yourself a trading plan that will help you to stay focused and trade like a pro. Don’t have a plan yet? Read more about what a trading plan should include. Everybody makes mistakes, and nobody is perfect. When you get accountable to yourself and others though, you can figure out what your mistakes are, and correct them. Then you can start making money!