Is Binary Option Trading Gambling?

Lupe

The financial commitment associated with trading binary options is something that discourages many people from getting started. Fortunately, there is an easy solution. Opening a binary options account with no deposit is a relatively easy thing to do, and it can get you started trading without requiring any sort of financial commitment.

Binary options have quite a complex reputation. Some people consider binary options trading to be gambling, and so they stay well away from it. However, others consider it to be a legitimate investment and they have a lot of fun (and make a lot of money) trading the markets.

If you’re on the fence about getting started with binary options, the gambling aspect might be the one thing that’s holding you back. Throughout the next few sections we’re going to discuss many points regarding binary options and gambling.

What Are Binary Options?

Buy Sell cubeA “binary option” is simply a financial instrument, similar to stocks, index funds, and foreign exchange. The difference with binary option is the fact that you have only two options: win or lose.

With stocks and other financial instruments, you can place a trade and you have an unlimited timeframe — allowing you much more freedom, but also more opportunity to make a mistake. Binary options are different, you place your trade on whether you think the market price will be higher or lower than it was initially (when you placed the trade).

This makes binary option trading a much more attractive approach to the market since there are only two options.

It All Depends on How You Operate

When it comes to binary options trading, many people think of it as gambling. However, we’d consider it more as “speculation”. By definition, gambling means risking money on a game of chance. However, speculation refers to an investment that has a risk of loss, but it’s not necessarily based on chance.

You see, when it comes to binary options you actually have a lot more opportunity than you might think you have. If you place your money randomly, then of course this is gambling. However, if you take time to conduct the proper analysis and document your trades to see where your weak points are, this is definitely not gambling.

It all depends on how you operate. Sports betting is considered gambling if you simply place bets on your favorite team. Although, it’s not really gambling if you place bets based on statistics and analytics.

So, how can you move away from the gamble and instead turn binary options trading into investing? Let’s take a look in the next section...

Learn to Invest Rather than Gamble

Not all investments are gambles and not all gambles are investments — hopefully this is something that you understand now. When it comes to binary options trading, it’s important to differentiate gambling from investment and learn how to invest rather than gamble.

If you’re gambling then you’re simply placing trades based on no solid evidence. For example, you might be placing a trade simply because you like the formation of the market.

If you’re investing then you’re place a trade based on solid evidence, such as a result from your technical, fundamental, or sentimental analysis. To put this into perspective, Australia produces about $5 billion worth of gold every single year. Understandably, when the Australian dollar rises, so does the price of gold.

With this in mind, a bullish trade on Gold would be an investment not a gamble if the Australian dollar was strengthening based on fundamental analysis.

Binary Options and Taxation

We say that binary options trading might be considered gambling, but it might not be — it depends on you. Unfortunately, your government most likely doesn’t share our views. This is why it’s so important to understand how binary options trading is categorized in the country where you reside or plan to trade.

In the United States, the profits you earn from binary options trading needs to be declared to the IRS if you earn over $600 in any calendar year. It can either be reported under capital gains tax (CGT) or personal income tax.

In the United Kingdom, binary options trading is considered as gambling as so there is no tax to pay. The profits you earn from binary options trading is considered as “winnings” or “prize money” as far as HMRC is concerned. This is also true with many other countries in Europe.

In Australia, you will have to pay CGT on the profits you earn from binary options trading. The same is true for people who reside in Canada.

Operate Clever

Hopefully you now have a much better idea about binary options and how they are viewed with regards to gambling and taxation. To conclude, we believe that the view on whether binary options trading is considered gambling or not is completely subjective and depends highly on how you operate.

However, your government probably doesn’t share our views. Make sure that you take notes on the “Binary Options and Taxation” section above to find out how binary option trading is categorized in your country.