Would You Go For An All-or-Nothing Investment Strategy?


binary options trading risk versus rewardAs a relatively new investor outside of the standard 401(k), I have been intrigued by the other options that are out there.  Unfortunately, I have found that there are too many different types of investments that it can be overwhelming.  Investing can be scary for those that have never done it before, but that shouldn’t scare  you away from it.

Without investing, it will be relatively impossible to retire in this day and age.  Most people need the power of compounding interest to help them along to reach their retirement goal.  Unless you live on a very little amount per year, you will have to jump into investments in order to retire.  With this information, you will need to pick what will work for you and what will make you comfortable.

Most will invest in mutual funds, EFTs, and index funds in order to keep a relatively low key investment strategy.  Most of my investments are dealing with index funds that give me a well rounded diversity.  I am trying hard to keep my Roth IRA with an aggressive allocation to make some money in the beginning, but I will change that as I grow older.  This strategy is to make sure that I can keep my money as secure as possible as I invest in the volatile stock market.  Sometimes, I wonder if there are quicker ways to make money.

What about All-or-Nothing?

Just recently, I have discovered options.  Not just any options, but binary options trading (Fixed Return Options).  I was intrigued by how these worked because when you are using them as an investment strategy you could have the potential to make some good money.

If you are unaware of what binary options are, then I will just say that they usually come in two forms, cash-or-nothing and asset-or-nothing.  Now, you can simply look and see that you either get it all or nothing.  There is nothing in between.  Here is an example:

……a purchase is made of a binary cash-or-nothing call option on XYZ Corp’s stock struck at $100 with a binary payoff of $1000. Then, if at the future maturity date, the stock is trading at or above $100, $1000 is received. If its stock is trading below $100, nothing is received.

source: wikipedia

After digging into this more, I realized that if you are vigilant and research your option, you can make some money.  I would say that stocks are probably the easiest way to make money with the call option.  You can dig into the history of the company, learn about product releases, and all of the other aspects that might affect a company’s stock price.  Armed with this information, you can make the right calls, but you would have to be prepared to lose it all.  Remember, it is all or nothing.

So, my question to you is have you heard about binary options before?  If so, would you invest in something that is all-or-nothing?  I can see some times when you can make some money, but you would have to understand that either you get it right or you don’t.  This type of trading comes down to risk versus reward.

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46 comments
Thomas | Your Daily Finance says July 11

Hey Grayson this is the first time I have ever heard of binary options! Is this something you can trade with any brokerage account? I wouldn’t have a problem with all or nothing especially if I can put up a 100$ to make a 1000$. My only issue would be that I don’t know enough information about that type of options to make sense for me to buy them. Its almost like call options and I spend money and if I dont execute the contract I lose what I paid for it.

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    Grayson says July 16

    I don’t think you can use them in a brokerage account.

    Reply
DC @ Young Adult Money says July 11

I have not heard of binary options before, which I think is strange because I took a derivatives class in college. Maybe I did hear about them, but if I did I can’t recall it. I suppose there may be a portfolio that this option is fit for – perhaps to hedge against some other risk in the portfolio. For most investors it’s probably best to stick to more basic investments.

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    Grayson says July 16

    This would be an option for those that like to take risks.

    Reply
Holly@ClubThrifty says July 11

I find investing in the markets can be complicated enough. Until I become a rockstar investor, I am going to stick with the simpler stuff.

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Michael @ The Student Loan Sherpa says July 11

I’m with Holly on this one. I work very hard to earn the money I have and my goal is not to be rich, but just to be comfortable. In this instance the risk would outweigh the reward for me.

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CashRebel says July 11

It honestly sounds pretty appealing to me because of the probabilities. Currently I only invest in index funds because I know picking stocks will most likely get me worse returns. I like the binary option because you can work out the probabilities easier and jump on the opportunities made available who are emotional about their investments.

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AverageJoe says July 11

I don’t think binary options are “investing.” I consider them “gambling.”

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    Grayson says July 16

    Isn’t all investing gambling? There is no guarantee of a return with any investment vehicle. That is gambling.

    Reply
Pauline says July 11

I would go for it if I had done my homework and was pretty sure of my choice. Taking a gamble on a yes or no is pretty risky but if you put some thoughts into it there is money to be made.

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    Grayson says July 16

    There is risk in everything. I wouldn’t dump all of my money in.

    Reply
John S @ Frugal Rules says July 11

I am with Joe on this one, I wouldn’t consider them investing but gambling. The problem is that they’re posed as basically easy money but it really is not. If you’re ok with the risk and are well educated on how they work then that’s ok – but otherwise I’d steer clear of them, and I am pretty risk friendly myself.

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    Grayson says July 16

    As I indicated to Joe, all ingesting is gambling. When you put money in with no guarantee of a return, you are gambling.

    Reply
Edward Antrobus says July 11

I’ve never heard of binary options before, but they don’t seem all that different than regular options.

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Matt Becker says July 11

I don’t know much about it but I have to be honest that I have serious doubts. It seems extremely unlikely to me that someone would legitimately offer you the chance at returns better than the actual stock might return itself. It’s likely that your probability of getting the payout is low, or the costs of the option are high. It also sounds like you’re foregoing a lot of the flexibility you have when actually owning the stock, namely being able to sell at some point before the maturity period (you might be able to sell the option, but who knows how efficient those markets are?). To me, this is likely a marketing gimmick that allows you a new avenue to pursue the excitement of speculation while ultimately handing your money over to a broker.

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    Grayson says July 16

    You can make money with them, but you have to be careful. They don’t run just on stocks, but also assets.

    Reply
Brian @ Luke1428 says July 11

In an earlier time period of my life I tried to invest in options and really struggled. They are high risk investments that require a greater time commitment and technical understanding. I also invested some money once in a venture capitalist deal, trying to get in on the ground floor of a B2B company. That didn’t work out either but is an interesting story.

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    Grayson says July 16

    Thank you for the story Brian. Good to have your feedback.

    Reply
Jake @ Common Cents Wealth says July 11

I have heard of binary options before, but I’ve never really looked into them. I’d be fine with taking an all or nothing risk, but not for more than like 5% of my portfolio. I wouldn’t want more than that allocated to something that may return 0. The upside may be worth it for some, though.

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Chris Holdheide (@StumbleForward) says July 11

Sounds like an interesting investment option, I’ve never heard of binary options before but it would be kind of interesting to learn more about.

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Financial Samurai says July 11

Absolutely! I aggressively swing for the fences with my rollover IRA and I encourage my younger readers to take more risk. One of my biggest regrets is not going for it even more in my 20s.

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Lindsey @ Cents & Sensibility says July 11

Thanks for introducing me to is idea, I didn’t know binary trading options existed. While I have to focus right now on paying down debt, I like to have my eye on the future for when this these payments are gone. I have a higher risk tolerance and I’m going to immerse myself in the collective wisdom of my noble PF peers so I can hit the ground running!

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    Grayson says July 16

    I would definitely pay off the debt before jumping into investments like this.

    Reply
Martin says July 11

I wouldn’t invest in binary options. First, they are not accredited by SEC (those who are offering them on US market), most of the companies are settled in Cyprus or Cayman Islands, so if something goes wrong, you can tell your account bye, bye and in my opinion it is a pure gambling, not investing. I am not convinced binary options are something I want to do.

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    Martin says July 11

    Just to add to it, you can start betting on horse racing and have the same effect. Would you call that investing? Binary options work the same way, you basically bet what happens on the market or any other event. So you predict, whether S&P500 closes above some value or below, whether DJI will be at some value or not, etc. That’s gambling, not investing.

    Reply
      Grayson says July 16

      I consider all investing a form of gambling. When you use money to try to make more money without a guaranteed return, you are gambling. There is no other way around that.

      Reply
    Grayson says July 16

    I appreciate your opinion Martin.

    Reply
Canadianbudgetbinder says July 11

I can’t say that I have heard of binary options but there’s not time like the present to learn about it, so thanks. I’m not sure what I would do to be honest. I’m just learning about investing now so I can’t really comment.

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Greg @ Thriftgenuity.com says July 11

I haven’t heard of this option. I don’t think I would pursue it. A little too much risk for my liking. Maybe before my next trip to Vegas, instead of gambling, I’ll try one of these 🙂 .

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jefferson @SeeDebtRun says July 12

Yeah, this is an intriguing option. But certainly a little too risky for a family man like myself.

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    Grayson says July 16

    I appreciate your opinion. Don’t want to take on that much risk with a family.

    Reply
Laurie says July 12

I keep hearing about binary options as I peruse different blog sites, but still don’t know enough about them to brave investing in that form.

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Jim says July 13

Love options, just don’t know much about binary options. I was always told to invest in things that you understand and that are not complicated. To me these seem complicated, course I am not the sharpest knife in the drawer, so I probably ought to focus my energy in real estate.

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thepotatohead says July 14

haven’t heard of them before. I have gambled on some big time risky stocks before that ended in the “nothing” category, buttttt….I at least had the opportunity along the way to get some stuff out. I’s have to be insanely sure to do the binary stuff at this point in the game.

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    Grayson says July 16

    Losing happens, but as long as you learn from it, then you are good.

    Reply
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