A binary option is a financial trading instrument, which gives you the chance to earn money by predicting whether the price of an asset will go up or down within a particular period. You can try it out here.
Binary options are a relatively new instrument to the financial markets, first launching in 2008. Unregulated by any governmental authority, this means that they can be exploited very easily by people with malicious intentions. Various types of binary options scams in the UK and abroad have become more common due to a lack of regulation.
Fictitious Returns
The scammer may promise you a return on your initial investment more significant than 85% if you sign up for their services. However, investing your money with them generates fake trading signals and places losing trades to make it look like they are successfully giving you false returns that never existed. They will typically require a larger deposit from you initially and then keep asking for more money as withdrawals do not happen automatically.
Tying Up Your Capital
This trick involves convincing traders that by purchasing many options (usually at least £300 – £500 worth) and then selling them off quickly at an inflated price before expiry.
The problem with this is that there are usually fees associated with these types of transactions, and the trader gets hit twice, which means they lose a significant chunk of their investment.
Inadequate or No Explanation Of Service Charges
Scammers will typically exaggerate the returns from your initial deposit while keeping service charges a secret. These can often be tied into withdrawal fees and taxation, again taking a large portion of your profits without you knowing it! They will show you trading examples where they have quickly made lots of money but conveniently leave out the taxes and any deductions that significantly reduce your profits.
Lack Of Any Regulatory Oversight Or Standards In Place
Binary options platforms should be regulated by an independent financial regulator such as the GFSC. Sadly, this is not always the case. Some unregulated trading platforms don’t operate out of anywhere within the EU, US or UK.
What Are Some Different Types of Scams?
Investment Scam
Investment scams occur when the trader sets up a fake investment company in name only to steal your money.
Pyramid Schemes
A fraudulent way of selling goods or services with the promise of making lots of money with little effort involved
The seller recruits members by convincing them that they can make large sums of money by joining the program and paying initial fees. New members are then persuaded to join on, believing they can make more money than their recruits, who start bringing in new people until eventually, not enough people are left for you to profit from it any longer.
Volatility Exploit
This is where the scammer’s software will cause your binary options assets to be more or less volatile than they otherwise would have been. If you see prices changing consistently over short periods, especially against you, this could well be an example of this kind of scam. It might not even necessarily affect the price of the asset you choose either! You should invest some time into researching assets before trading to avoid being caught out with this one.
What Can You Do to Protect Yourself?
Register with a trusted binary options brokerage firm; this will give you access to regulated trading platforms and the Financial Conduct Authority (FCA) for protection. Also, take your time to research any company you are thinking of doing business with online by searching their name, reading client feedback and checking the Financial Services Register. These small steps can go a long way to protecting yourself from becoming just another statistic.
In Conclusion
By knowing how certain types of scams work, traders can protect themselves from becoming just another statistic. For example, registering with a trusted binary options brokerage firm and making sure they read client feedback can help them avoid losing their money. Scams like these make up about 25% of all scams in the UK, which is a large chunk of investment. The best thing you can do is arm yourself with knowledge, allowing you to make better decisions regarding your money and where you invest it.
