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Binary options are gaining traction with retail brokers. The product is easy for the average Joe to understand. Has anyone seen these sites? Are they even legal? I imagine a security based on publicly traded stock must be governed by the SEC?

The site works by you selecting if the price in exactly one hour will be above or below the current price.

They are really a rip off. The pricing is really bad. Payouts are around 70%, for both a bear or bull trade. Obviously in a perfectly fair market without transaction costs there should be offsetting payouts on either end. i.e. if payout for above a given price is 70% return then the payout below the price should be 130%. The sites are acting as the market maker I guess, and making killing.

The other ethical issue is they advertise "make 70% in an hour!" but they forget to mention "lose 100% in an hour."

Comments (72)

  • creditderivatives's picture

    I don't think I've ever agreed with anything as much as I agree with that, FXTrader.

  • m.c.trader's picture

    Thanks for the advice, I'll def. heed that and I agree with you on all points, I got carried away. I sent you a PM and hopefully we'll chat.

    I'm applying to the UChicago program as well, taking the GRE Wednesday actually, don't know whether to apply to Math or the MSFM, def. would like to hear what you though about it.

  • Revsly's picture

    Well said FX! Definitely keep an open mind M.C., I would wager you might come out with a different perspective.

    Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard.
    -30 Rock

  • jonabrown77's picture

    Do you guys know/use any site that has a minimal deposit that is lower than 50$.

  • BB Quant's picture

    Buy a tight call spread if you want a freaking binary without giving up 10% on the trade. Exchange traded options are the only way for retail investors.

  • In reply to creditderivatives
    BB Quant's picture

    The key is time frame, I've never seen hedge fund clients use digitals for a few hours, much less At-The-Money digitals expiring in a few hours.

    Most frequently, you'll see digitals employed for 2-week to 3-month time frames, further out of the money, because then our sell-side desk can harp on the fact that the purchaser can obtain a payout 8.5 times the cost (based on the parameters).

    So no, I can safely argue that hedge funds do not use digitals to bet on being right in a few hours, digitals are ill-advised for such a short horizon.

    unqwertyfied, it doesn't quite work like that.

    70% profit on wins
    90% loss on losses

    Here's a simulation where i was right 4 times out of 5 (80% correct) and still lost money:

    Start with $1000.

    First trade: Win----------Balance: $1700
    Second trade: Loss----Balance: $170
    Third Trade: Win--------Balance: $289
    Fourth Trade: Win------Balance: $491.3
    Fifth Trade: Win---------Balance: $835.21

    ATM binaries expiring in an hour = a great way to get whiplash.

    I'd love to listen to somebody with no actual experience explain to me how easy it is to delta hedge such a thing...

  • leveRAGE.'s picture

    a big thanks to whoever brought this thread back. absolutely awesome read.

  • In reply to jonabrown77
    Tupac's picture

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  • UncleKevin's picture
  • GoodBoyFX's picture

    Keep on sucking till you succeed, Curley.

  • C.J Williams's picture
  • Futures Trader Man's picture

    "Well, you know, I was a human being before I became a businessman." -- George Soros

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  • In reply to FXTrader
    reformed's picture