Binary Options: CherryTrade

The Big Promise

Profit-and-Loss-1024x853.jpg
Profit $ Loss. © Google Images/humanise.org.uk

To follow this conversation, it is important to have a basic understanding of how binary options work and how they differ from "regular" options.

 I had an opportunity to look at what CherryTrade has to offer when trying to decide whether binary options trading is something I can recommend. This site received a positive recommendation from more than one blogger, so I decided to take a closer look. This broker makes the big promise (or it is almost a promise) that using their platform is the path to making money.

Right at the beginning, I was displeased because  I was forced to open an account -- but not forced to deposit any money  -- just see their trading platform and how it works. They now had my personal information and I had numerous questions. 

Immediate impression
My immediate impression for trading stock-market indexes: To earn $100 for a winning trade, I had to invest $143. There is a 10% refund (the "protected" amount)  for making a losing trade. Therefore the final numbers are: 

  • Win $100 when correct
  • Lose $128.70 (after refund) when wrong

I don't like these odds. To break even the trader has to be correct nine times for every seven losing trades (56%).

The sales pressure: Two weeks after opening the account, I received a follow-up telephone call from a salesman at CherryTrade. When he was unable to convince me to fund the account, he put me in touch with one of their broker-analysts. This person is a very serious-sounding trader (that is good), whose job it is to encourage me to fund my account -- after which he teaches new clients how to trade binaries.

I enjoyed speaking with him because he explained everything that the company does to help their customers succeed. Nevertheless, I felt too much pressure.

The analyst/broker provided the following information responding to my questions: (Note that I have no evidence to either prove or disprove his statements.)

  1. I told him that it was impossible for me to correctly predict market direction. He replied that if I cannot make such predictions, then trading is merely gambling. However, by learning technical analysis (Candlesticks) first, and by taking his FREE set of lessons, I would learn how to win often enough to make money as a binary trader -- but only if I was serious about making money.
     
  2. A CherryTrade video explains that the trader has to "invest" $120 to earn $100 (NOTE: In reality, the payout for a winning trade varies, depending on the duration of the trade as well as the underlying asset. See example above.) In my opinion, this is the most serious flaw with trading binary options - the payouts are just too small. However, this is standard for the binary options industry and  there is no warning of just how bad those odds are for the trader. 

    The video uses an example in which the trader makes one trade (requiring 10 minutes) every business day (22 per month) and learns enough from the lessons to perform better than average (average would be 11 wins and 11 losses) only "two times per month" to earn good money (40% annualized return when investing 2% of the account in each trade). In other words, a track record of 13 wins and 9 losses per month (59% winning percentage) is the path for successful trading. By the way, The video's average performance is obtained by asking a 5-year old child to predict market direction each morning.
     
  1. The analyst's main selling point is that he can teach people to trade the markets (commodities, currencies, stock indexes) and win. Despite the fact that most professional traders are pleased to earn returns in the low double digits every year, he wants people to believe that he can replicate that 59% win/loss performance and can transfer that skill to his customers. I find it difficult to believe. 
     
  2. They offer a bonus of up to 50% of a trader's initial deposit. This frightens me. If I have a reasonable chance to make money, why would they offer a bonus? That is a tactic used by online casinos to attract gamblers. If a trader truly had a chance to earn profits consistently, there would not be a bonus.

Decision time: Should I open a small account and take the time to see how good he is at transferring those skills?

For now, the answer is 'no.' The fact that a bonus is offered is a big warning.

As far as trading binary options are concerned, if you do want to take the plunge, CherryTrade will take the time to provide you with a solid education. How well you, or any new trader, can use that education remains an open question. I prefer to trade regular stock options where I can sell credit spreads and have much better chances of earning a limited profit.