Overview of Binary Industry
Although Binary options are an extremely popular form of trading across the globe, due to it being a fairly recent market innovation (dating back to 2008), most countries do not have a regulatory framework to govern binary trading. In the absence of regulatory oversight and with so much money circulating around, binary options fraud is bound to occur. With hundreds of binary platforms on the internet, it is easy for a binary option scam broker to hide behind the façade of a legitimate operation and easily fool any trader if they do not know what to look for.
Since the introduction of retail binary trading, it’s more than likely you will have heard of countless number of people getting scammed by unscrupulous binary options brokers. This has led many people to conclude that binary options trading is a scam. The truth is, binary trading is a legitimate investment option and is regulated in various countries around the world. With binary options, you are simply required to predict if the price of an instrument will rise or fall at the option’s expiry time. If your prediction turns out to be true, you will receive a potential payout usually in the region from 70% to 85% However if your prediction turns out to be inaccurate, you will lose the premium that you paid for the binary option.
Recommended Trading PlatformTry Now
- $250 Min. Deposit
- 24/7 Support
- 100% Welcome Bonus
- MobileTrading Platform
The Best BrokerTry Now
- $250 Min. Deposit
- $50 Signup bonus
- 24/7 Support
- 150+ assets available
Binary Options Misconceptions
On the surface, binary options trading looks like a 50/50 game of chance, as you will either make the correct prediction or the wrong prediction. The fact is through proper market analysis, it is possible to determine with a high of degree of accuracy as to which direction prices will move. But as binary trading is still relatively new compared to more traditional form of investments, there are many people who do not understand how binary options trading actually works. So, when you add the cases of people getting scammed by unscrupulous brokers to the incorrect perception of binary trading being like gambling, it is easy to understand why many people think it is a scam.
No Guaranteed Investment Returns
Benjamin Franklin once quoted that “In this world nothing can be said to be certain, except death and taxes”. In the same manner, no one can truly predict which direction prices in the financial markets will head to. All that we can do is to shift the odds of winning in our favor by conducting due diligence through proper market analysis and coming up with a proper trading strategy. This same principle applies to binary options trading which is essentially an all-or-nothing proposition. Even though a binary trader just has to predict which direction prices will move (eg. UP or DOWN), there are still uncertainties which no one can account for. With gambling, everything is down to chance and randomness. No gambler can predict which horse will win at the racetrack or which number a roulette ball will fall on. But this is not the case with binary trading as the trader can still look through the historical price data and current market news to see how prices will react. In other words, it is down to skill rather than luck.
Avoiding Scam Brokers
Now that we have established binary options trading is a legitimate form of investing, we will look at how we can discern a legitimate broker from a scam broker. Scam binary options brokers regardless of where they are operating from have traits that are common among them.
- Their regulatory status is questionable.
- They often make promises which they can’t keep.
- They often downplay the trading risks involved.
- They have no regards for privacy.
- They simply refuse to pay out to traders.
In every industry, regulatory bodies are established to set the standards as to how the different players in a particular industry should operate. Their primary objective is usually to ensure transparency in the transaction process as well as protecting the interest of consumers. This also applies to binary options trading but as it is a new industry, not many countries have the legal framework to regulate binary trading hence leaving the industry largely unregulated. Nevertheless, there are several countries in the world that are actively regulating binary options trading with the most notable one being Cyprus. It is no coincidence that most of the leading binary brokers are based in Cyprus. Brokers in Cyprus are regulated by the Cyprus Securities Exchange Commission (CySEC) and under the MiFID rules issued by the European Parliament, CySEC’s regulated brokers are permitted to “passport” their CIF license to other member states within the Eurozone and operate legitimately.
However in order for a broker to obtain a CIF license from CySEC, it must first meet strict regulatory requirements before being issued a license. However to comply with all the required requirements, brokers usually have to make a substantial investment beforehand. Because scam brokers are only in it for short-term gain, they often refuse to put more than the “bare essential” capital into their business. Hence, scam brokers are almost always unregulated.
They prefer to rely on white labeled trading solutions (which come with in-built regulation) and more often than not their website design and customer support are lacking. In addition, you will find that they also provide hardly any training resources for their clients. While these red flags is not conclusive evidence that the broker is a scam broker, it is a strong warning sign that the broker is likely to be a bit dodgy.
One of the techniques used by scam brokers is to downplay the risks involved in binary options trading. By downplaying risks, they hope to convince inexperienced traders to sign up with them. They might even promise that traders who trade with their trading platform will never lose their investments with their in-house experts guiding them on what to trade or managing their trading account on the traders’ behalf and even offering free trades.
As mentioned earlier, nothing is guaranteed in life and even more so with binary options trading. If a broker says that there is no risk or very little risk involved in binary trading, then they are not being truthful. All forms of financial trading are high risk endeavors, which is why all financial regulatory authorities require financial services providers to inform their clients of the risks involved.
Dubious Terms & Conditions
For most people, they often avoid or neglect reading the small print like the terms and conditions when they sign up for a service. For example in the case of a software installation process, a person after reading pages and pages of tiny print asking if he wants to install the software has no choice but to click “I Agree”. However in the financial trading industry, one should never neglect to study the terms and conditions as laid out by the broker, as this could mean you agreeing to give up certain “rights” in favor of your broker in times of dispute. Scam brokers often use dubious clauses in their terms and conditions to justify their actions in order to give the appearance of legitimacy. By avoiding brokers with unreasonable or dubious terms and conditions, you save yourself the trouble and headache of trying to explain to them why their actions are wrong or unlawful.
Providing your personal details to your broker is one of the requirements which financial services providers must follow under anti money laundering rules. However, brokers are also required to keep all these data secure and confidential. Hence if all of a sudden you start receiving calls from telemarketers soon after you sign up with a binary options broker, there is a strong possibility that your personal information has been compromised. In this case, it points to the fact that the broker is lax in its security or it has sold your personal information to a third party for marketing purposes. Again, this is not conclusive proof that you are dealing with a binary options scam, but it does point to the fact that the broker does not look after your interests as much as their own.
Non-Payment of Funds
Perhaps the strongest indication that the broker you are dealing with is a scam broker is when they refuse to process your withdrawal requests or intentionally slow down the process of paying you back your money. While there can be legitimate reasons why a withdrawal request is delayed such as due to the failure of the trader to verify his identity, it is a different case with outright refusal to process a withdrawal request as this constitutes fraud on the part of the broker. Usually you will find the broker is also refusing to take your calls or answer any of your emails.
Nobody wants to be scammed yet people do still fall prey to binary options scammers. While it is possible to report them to the legal authorities and hope something can and will be done to rectify the situation, your best course of action is to avoid becoming a victim in the first place by educating yourself as to which brokers can be trusted to sign up with.
Q: How do unscrupulous brokers scam traders?
Answer: In a number of ways actually. Firstly when brokers are not regulated they pretty much act as they wish. They are free to make promises which they can never keep eg. profit guaranteed. Brokers may not let you withdraw your funds when you require them although they are in your trading account. Bonuses and promotions can be scammy, as you may be told you will get 100% welcome bonus, but in order to withdraw from the profits you make, you will first have to follow many terms and conditions eg. trading a certain amount of volume before you are permitted to withdraw.
Q: Is my privacy guaranteed when signing up to a broker?
Answer: Actually it’s not, some brokers can sell on your personal details to third parties. If you start getting annoying phone calls from other companies that you definitely didn’t sign up to you can pretty much bet that your details have been sold on.
Q: Can I protect myself from binary scams?
Answer: Only work with regulated brokerage firms, not only are your funds protected should the firm become insolvent but your privacy is guaranteed and your funds will be kept segregated from the companies accounts.