Following ESMA temporary measures against binary options in Europe, it seems it is fashionable to bash this type of trading. Recently the Financial Times has published an opinion by Hannah Murphy titled “Binary options trading is that – though few will mourn it”. In short, Ms Murphy expresses the view that binary options is by design a scam, that “tantalising grey area between financial investment and gambling”. Please read the article in full.
I’m not going to argue that “binaries are largely no more, regulated out of existence by Europe’s markets watchdog”, since any European willing to trade them has the right to do so (mainly with offshore brokers) and that ESMA measures are temporary. Yes the European brokers will make space for their offshore competitors, but that’s it. I’m more interested in the arguments developed by Hannah Murphy to bash digital options, that are not convincing in my opinion. The following is actually the email I sent her after reading her article (I just replaced 2 company names by xxx). So far I did not get any response, but nevermind:
“I read with interest your article about binary options as someone learning how to trade them.
Even if I agree with many points raised, I have the feeling that the product is designated as the culprit while it is the bad actors of the sector that made binary options so risky.
Some of the practices you rightly denounce (like account managers harassing customers) apply to “respectable and regulated” platforms used by retail investors to day trade. I have registered demo accounts with such (xxx and xxx, not to name them) and I get phone calls (unanswered after I find out who they are) from those people. With the leverage offered on FX and others, you can also lose money there. A lot. Many do.
Back to BO. There are a few decent platforms to trade binary options. Nadex is regulated in the US. Or the platform I use, Spectre.ai, powered by the Ethereum blockchain (traders can trade from their ETH account or after depositing on the smart contract), and others. The sector clean up was needed and it is not over, but it does not mean binary options are a scam, as you suggest.
Any kind of staking/trading is risky. Your arguments can be used again any vehicle involving a stake. For example, you say “How can anyone make an informed decision on the price of an asset within the next minute”. Well, how can you make an informed decision about which player is about to get the next yellow card in a soccer game? While I would argue that technical analysis can give clues about the direction of an asset, in case it went suddenly in overbought or oversold territory for example.
You try to address this criticism when you write : “But gambling is still allowed, I hear you cry. Isn’t this the heavy-handed nanny state telling me what I should and shouldn’t do with my money? Hardly.” I’m afraid that you fail. I get a return of 73 to 83 % on my winning trades. I guess it can be 50 % in some instances, but again it is about what platform you use. All the other points you raise applies to the gambling and gaming industry. Actually the scammy BO brokers use the sports betting or online casino marketing techniques to lure customers (bonus with rollover, risk free trades, etc.). Ironically some states in the US are starting to legalize sports betting. I’m curious to know how much Americans lose every year playing the lottery, in casinos, poker etc.
I argue that with binary options or other types of trading, I have a chance to make some money based on skills and not luck. Why retail investors, properly warned, could not have a try? And even if I lose money, who can tell me what to do, on what hobby I may lose money? This is opening Pandora’s box. Why not banning tobacco? People spend fortune on cigarettes and it destroys their health. Alcoholism is a plague (oh they tried prohibition… there is a very nice documentary on Netflix about this). So yes at the end of the day, once you sort out the regulatory issue that should ensure a safe and fair trading environment, it is all about the nanny state telling me what to do or not. Maybe the solution would be to handsomely tax BO? Suddenly the addiction it might induce would become more palatable.
Finally, it is up to regulators (financial or gaming bodies) to make sure brokers do not scam their customers. I have the feeling that the regulatory bodies failure to oversee this particular product is used as an excuse to attack it. They want to treat it as gambling? Then fine, let them be regulated by some gaming commission! Why should I be prevented to bet that the dollar will go down against the yen because they just announced that the US economy unexpectedly slowed down during the last quarter, but I can bet 1000 $ on the 7 at the roulette because my daughter is born on that day?
I have the feeling it is very trendy to demonize binary options. As someone who likes to trade them, I feel it is unfair. I’ll be on your side to fight the outright scams. But willing to ban this kind of product in the name of “consumer protection” is not acceptable, otherwise you need to ban a lot of things in the name of general public protection. I understand this issue is complicated, but a binary approach is certainly not the answer.”
Let’s hope this witch hunt will stop, that regulators and the justice will do their job by prosecuting criminals to protect the traders and let people willing to trade binary options do so, despite the bigotry of the people who despise them.