Learn How Unregistered Binary Options Sites Can Snare Savvy Investors

04/18/2018 4:15 pm EST

Focus: OPTIONS

Dan Rutherford

Deputy Director, Office of Customer Education and Outreach, U.S. Commodity Futures Trading Commission

 

For some traders, binary options can seem like an attractive way to make money. But like any trade, binary options come with risks. Unfortunately, one of those risks is fraud conducted by unregistered online trading platforms that operate outside the United States.

Fraudulent websites have stolen millions of dollars from thousands of traders in the U.S. and around the world. They go to great lengths to build sophisticated trading platforms, social media testimonials, and commonly hire so-called “brokers” to make traders believe they are getting personalized attention.

A binary option is a yes or no (put or call) trade based on the price of an underlying asset at a set time and date. Once traders acquire a position there is no other decision to be made. At expiration, their position either ends in the money – they’ve guessed correctly and receive a payout – or not and they lose their money. Binary options can be a useful hedging tool for some traders, and can be legitimately traded in the United States on a few designated contract markets registered with the U.S. Commodity Futures Trading Commission (CFTC) or the Securities and Exchange Commission (SEC).

Registration matters because when a binary options company is registered, you know it meets specific regulatory requirements for liquidity, safety, and customer protections that are enforced by U.S. regulators. Registration does not guarantee fraud won’t happen, but traders are likely to have some recourse if fraud were to occur.

Considering trading binary options? Here are a couple factors to keep in mind:

Anyone can build a trading website

Binary options fraudsters can come and go overnight because the tools to build these cyber-scams are robust and easy to come by. Anyone—including fraudsters—can build a website, even after their previous web properties have been shuttered by authorities.

That’s why smart investors check the registration of a company or broker before giving them any money. Visit the CFTC’s SmartCheck.gov website for tools you can use to verify registrations and disciplinary histories.

You can also check the ReD List for websites that appear to be acting in a capacity that requires registration with the CFTC but are not registered.

Promises of low-risk and high-reward trades can be tempting

Illicit binary options companies begin by luring savvy traders with a rational proposition, a low starter deposit—just a few hundred dollars to “try it out.” Should advice be needed, these fraudulent companies offer electronic systems to automate trading decisions or personal “brokers” willing to offer their guidance.

Once invested, “brokers”—also commonly unregistered—go to work. Pointing to the profits in accounts, they convince account holders to increase their investments. The “brokers” are often just glorified salespeople trying to coerce you to spend more money. They’ll point to the profits customers are earning and suggest they would make even more or could get additional service, like insurance against losses, if they just increase their investments to keep the momentum going. Many times, though, the gains customers see aren’t real.

Take a minute to watch the True Fraud Stories of Nick and Lowell, two savvy investors who were victims of a sophisticated binary options scam.

This article was prepared by the Commodity Futures Trading Commission’s Office of Customer Education and Outreach. The article is provided for general informational purposes only and does not provide legal or investment advice to any individual or entity. Please consult with your own legal adviser before taking any action based on this information.

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