It all started with a bang, back in 2008 when binary options entered the mainstream scene of trading. It was the new fad and everyone was flocking to get a piece of the pie... but, was it trading? Hmm, some called it gambling, others called it a scheme that benefits the brokers and software sellers, to the detriment of traders. I say: it's what you make of it. If you want to treat binaries as trading, you certainly can, but if you think this is just an easy game designed to make you rich by tomorrow, think again.
The Early Days and the Misconceptions
The marketing for binary options relied heavily (and still does) on their ease of use. "Just pick Call or Put and wait for expiry" they say... but nobody tells you how to decide whether you're going to use a Call or a Put. And what about expiry? Five minutes, five days, end of the month? All of a sudden, binary options seem more complicated. Well, it's trading, what you expected! But you see, that was the early misconception: people assumed you can simply open a binary options account and start making money fast and with almost no learning curve. When they realized that's not the case, some started calling binary options gambling and some did the right thing: they started learning.
The Wakeup Call
Usually when there's demand, someone will create the supply. Once people started to ask for education, websites started to provide it. Notions like trend lines, Fibonacci and technical analysis started to make their way into binary options conversations, people started to get together on Forums, discussing, learning and finally treating binary options like a financial instrument. Yes, placing the Call or Put was easy, but making the right Call could Put some traders off. Now education is freely available and people are embracing the learning curve. But another reality is knocking on the door: not all brokers can be trusted.
The Broker Conundrum
To trade binary options, you need a broker... but who are these brokers? Ever since the beginning of mainstream binary options, brokerages started springing up like mushrooms after the rain. Ok, nothing wrong with that, but some of them (read "most of them") didn't have any sort of regulation and in fact, there was no information about who owned them or where they were located. Despite all this, people still opened accounts with them and blindly gave them money to trade. Yes, you read that right: they gave the brokerages money to trade on their behalf.
Some people answered the wakeup call and learned to trade for themselves but others were still stuck in the fairy tale of "Even Grandpa can trade binary options. You'll be rich!". This second category became the target for unscrupulous brokers who claimed they could bring in 100 percent return on investment per year... and even more. Well, according to Barron's 2016 List: Best 100 Hedge Funds, an annual return of 29.94 percent gets you first place among hedge funds. Wow, so an unknown binary options brokerage can make more than three times (percentage-wise) what the best hedge fund makes?! I guess it's time for all of us to sell the house and invest with whoever promises us the more money. No, please don't!
There are tons of brokerages, some promise you the Sun and Moon, others promise you a safe trading environment and professionalism. Choose carefully between the two types, invest small in the beginning and always read reviews from reliable sources. If the review is a long praise and talks only about the good side of the brokerage, you can be almost sure it's a paid review and you shouldn't pay any attention to it.
The New Fad is Fading Away... Or Is It?
Because people traded binary options without proper education but with high expectations, they lost money and were obviously disappointed. The shady brokerages gave a bad name to binary options and the fad started to fade away. However, this doesn't mean that binary options will go away; instead, I believe that a purge is coming. Yea, sorry for sounding apocalyptic but it's the truth: nowadays we see more and more regulated brokerages and authorities are finally starting their "spring cleaning" of the industry, issuing fines and warnings to the bad apples of binary options.
Traders are learning to trade, they stopped believing all the hollow promises and the noose is tightening around the neck of scammers. This ultimately means that binary options will be safer for us to trade. Don't get me wrong, you can still lose money, because trading is inherently risky and you should always remember that, but at least you will be battling the market, not the broker and the dream seller.