Tuesday, December 7

The foolproof formula for making money with binary options: Be a broker | Bitcoin Portal

Binary options are artificial derivatives that are a variant of so-called vanilla options, which are used by foreign companies often persuasively. In order to operate these derivatives, as they are not regulated in Brazil, it is necessary to open an account on platforms abroad.

The term “binary” reflects the winning odds that this kind of derivative presents — you can win or lose. With them you bet on currencies, stocks and commodities.

There are several ways to operate in this “market”, they are “one touch” e no touch”.

The ‘one touch’ is characterized by being an operation that is closed when the asset reaches the determined value within the stipulated period.

In ‘no touch’, the proposal is that the price does not reach the limit determined during the operation, the “60 seconds”, which is characterized by the possibility of ending the operation as soon as the stipulated value is reached — it is the best known and which prevails in the market is called “money or nothing”, that is, by setting the direction of the asset you win. If you make a mistake, you lose everything.

Binary Options Math

Despite being extremely widespread in recent years, especially in ads on social networks, one thing that is not said about this market is that the long-term mathematical expectation is that all your money will go to zero.

But why would that happen?

Well, when you play on these platforms, the maximum you win (when you hit the bet) is around 90% to 95% (there are still high fees charged by these “brokers”) of the amount invested and the maximum you lose is everything what you invested.

Analyzing probabilistically, binary options have lower chances than casino games, such as roulette, where there is an advantage of the bank earning less than the binary options broker.

But before explaining how this advantage works, it is important to remember that the comparison with roulette (classic game), like Black Jack, arose from the teachings of Edward Thorp. He was responsible for “breaking the bank” with the use of probabilistic calculus portrayed in his book “A man for any market”.

Binary Options vs Casino Roulette

Thus, thinking of roulette, there are red and black values, distributed evenly, that is, there are the same number of houses, which would make the game fair, were it not for the roulette to present the house “zero”, giving the casino an advantage about the bettor.

This advantage can be exemplified in the following way: if the player chooses the red house, he has a 48% chance of winning and a 52% chance of losing, which gives the bank an advantage over the bettor ranging from 4% to 5% .

Thus, although it is not possible for the investor to make profits in this market, there is always someone who gets them all right and does not take a loss on any bet, the ‘broker’. In addition, she always profits from brokerage, which is extremely high and disregarded by most bettors.

It is important to say that brokers often retain balances, not allowing them to be redeemed and, in these cases, you have no one to turn to, since the modality is not supported by the CVM.

The autarchy, which disciplines and supervises the securities market, has already stated that the IQ Option. is not authorized to attract customers residing in Brazil, since it is not part of the distribution system provided for in art. 15 of Law 6.385/76.

Whenever you see someone talking about binary options ask the person if they know how to calculate the following formula, which despite being very similar to the option pricing model developed by Black, Scholes and Merton, has one more variable, which reflects all considerations made so far.

Options in the traditional market

It is important to say that there are binary options instruments in the “traditional” market, such as the Copom options (they are of the “model”money or nothing”). These options are characterized by being a safe and transparent instrument that reflects the variation in the Selic Target Rate decided at each Copom meeting. With it, it is possible to hedge against the excesses and interferences in the country’s monetary policy.

Therefore, what differentiates binary options that appear in advertisements on their social networks — mainly for brokers based abroad, from vanilla options — are their pricing model, the lack of CVM’s support and the mathematical expectation tending to zero , with regard to the returns that can be obtained.

About the author

Gabriel Matos is a CEA investment specialist certified by Anbima, passionate about options and technology, operating in the derivatives market since 2017.


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