PROOF that robots and Binary Options may not work as advertised
Don’t let the title mislead you. Robots CAN work but the way they are advertised on the internet will not work with binary options like they work in forex, futures, and stocks. It is mathematically impossible.
Before you finish reading this, you will have some proof that you can store in your quiver of knowledge that will hopefully help you become a more informed trader. This article covers only 2 main points:
- Why binary options robots won’t work for the masses
- How to get a binary option robot to actually work as advertised
Let’s dive into ‘Common Sense’.
If you scan through Google and type any term related to binary options and robots, you will see all of these big and fancy advertisements about how great these robots are. I call foul. I think all of these websites promoting this are fake and I think I can prove it by using a little bit of common sense.
This common sense is something that will create a new neural pathway in your brain because once you see it, you can never unsee it.
Common Sense is not so common.
If you don’t know what common sense means, then just imagine the following scenario… A School bus was carrying 347 kids to school. Every kid had brought a suitcase and a bicycle onto the interior of the bus. If someone told you this story, would you believe them? Probably not.
Why wouldn’t you believe them? Because you have stored information in your mind, over the years, that tells you how to know if something is true or false. You already know that a bus can’t carry 347 kids because it is too small. Just maybe it could if they were squeezed onto the bus.
Throw in the bicycles and suitcases though and now you KNOW that this story is fake because it just couldn’t happen. There are too many kids and objects to fit onto the bus. You have no reason to think otherwise.
This is called ‘Using your common sense’.
If it’s too good to be true, it probably is.
My dad kept telling me this as a kid. I think he said it so much that it may have hurt me into critiquing everything I see in life. However, I am so glad I learned this lesson at an early age. It has saved me lots of heartache.
When I was 18 years old, I thought I was going to be the next huge millionaire! I had paid $250 for a kit to sell Prepaid Phone cards, in a Multi-Level Marketing Ploy. This concept, at the time, seemed like the easiest money of all time. It wasn’t.
The following advertisement is not too good to be too. We will give you (totally free of charge) some great trading tools for Meta Trader 4 as a thank you for reading this article… and in return for your email address of course 🙂
OK, Let’s continue with our little conversation here….
When I was about 25, I got involved in a sham company that promised riches. They were going to invest in a business deal I had. Jamie Foxx was even involved… so they said. DISCLAIMER – He wasn’t actually involved. They just told me he was, which was total hogwash!
It wasn’t until I paid the start-up fee of $3,000 that I realized I was going to get nothing in return. I was even questioned by the FBI into the validity of this scam.
If it seems too good to be true, just use common sense and ask yourself, ” What’s in it for the companies that are proposing these robots? Not all trading robots are fake. There are many that work. In binary options, however, this is probably not the case and you are about to find out why.
Two Different Binary Options Models
In binary options, You have 2 different models, the Exchange Model, and the Broker Model. Do you know the difference?
The ‘EXCHANGE’ Model is when you are trading through an exchange. You trade against other traders and market makers. The exchange doesn’t make money on your trades. Rather, they make money from the commissions you pay.
The ‘BROKER’ model is when you are trading against your broker. There are no other participants. These have been scrutinized and are currently being shut down left and right, due to their fraudulent nature. Here are a couple of links to back up these statements.
To find out more about binary options fraud…
All you need to do is type in a few search terms into Google, such as:
- Binary Options Fraud
- CFTC Binary Options
- Binary Options Scam
Look in the ‘NEWS’ section, instead of the general search query. By using the news function, you may still see bullcrap articles but it is a line of defense. Use your common sense by looking at where the news comes from. Is it a reputable source?
So what is The #1 problem with Robots and Binary Options
This is liquidity. Do you know what liquidity is or how it affects the markets? Basically, there are only so many trades to go around and once this number reaches maximum capacity, then n no more trades can be taken, in the REAL WORLD.
Let’s assume for a minute, that we have found a binary options robot that works. The picture You will see below is undoubtedly something that doesn’t work but just pretend for a minute. Maybe you see an ad that looks like this…
Do you see where it says 83% Win rate? In most broker models, the trades are ATM or ‘At the Money’, which means that you are risking 50 to make 50 in an ideal world. Most brokers make you risk 60 to make 40 but that’s a story for another day. Let’s look at this 83% win rate.
First off, in the exchange model, the 83% win rate is fine because you can take ITM or ‘In the Money’ trades. There is still the issue with liquidity. Let’s break down the math…
Out of 10,000 potential trades per year, 8,300 are winners.
1,700 trades are losers.
If 10,000 people trade this robot, this means that the broker is losing 8,300 trades and winning 1,700 trades, while the trader is winning 8,300 trades and losing 1,700 trades.
Let’s pretend that each trade is worth $100.
If the robot, pictured above, actually works as promised, the broker is losing $830,000 and winning $170,000 for a net yearly loss of -$660,000
(CLICK HERE) to find an example of how to know if a strategy works or not.
Why would a broker promote or even allow a robot that did this type of damage to their business? The short answer is they would not do this. There is not enough money to go around and if a business is not profitable, they can’t continue to operate.
Here is a picture (It looks more like a government redacted document) that shows you that the brokers are actually pitching this junk.
I pulled this picture directly from one of the largest binary options brokers out there. So here is the question… WHY WILL THEY PROMOTE SOMETHING THAT WILL LOSE THEM MASSIVE AMOUNTS OF MONEY?
In short, they would not do this. It’s financial suicide. It’s crap unless I am proven wrong and so far, I have not been.
Will Robots work on a Binary Options Exchange?
Again, No! Not like everyone thinks they will. Here is why:
We know that in the exchange model, you are trading against other traders and market makers, instead of the exchange. This gives robots a big advantage but there is still liquidity to worry about. If you don’t have enough people willing to take the other side of your trade, it’s a moot point.
Watch this short video and you will see why.
Think of it this way… If a local produce seller has 10 baskets of apples and wants to sell them all, he can only sell the apples he has. He can’t sell 11 baskets because he doesn’t own that much. If this guy found out that there was some type of algo system that would ensure he lost money, he would change the price of his apples or choose a different business to be in altogether.
How can I find a Robot that will work with Binary Options?
The ONLY way to ensure you have a remote chance of finding a robot that will work is if there is a liquidity factor built in. For instance, let’s pretend I am building a binary options robot (Which I am, BTW). Let’s also assume that the liquidity is a factor that I have to account for. I will need to
I will need to only allow a certain number of traders to use it so that they don’t dry up liquidity as a whole!
Market makers WILL NOT continue to make markets if they start losing money so limiting the number of people using it is a key factor.
Just Be aware.
Cantor Exchange and Nadex Robots?
As of the writing of this article on 8/07/2017, no robots exist for Nadex and Cantor Exchange. Anyone who says they have one for Nadex is actuallly breaking the Nadex Terms of Service and will be shut down soon. I am not aware of any robots for Cantor Exchange that are currently available.