Binary Option Scam

Much of the binary options market is conducted via Internet-based trading platforms that may or may not be in compliance with applicable U.S. regulatory laws and may be engaging in criminal activities.

What exactly is a Binary Option？

A binary option is a type of options contract in which the payout is wholly dependent on the conclusion of a yes/no proposition, often relating to whether the price of a specific asset will rise above or fall below a predetermined amount. Once the option is obtained, the holder has no additional decision to make regarding the binary option's exercise because binary options exercise automatically. A binary option, unlike other forms of options, does not provide the holder the right to buy or sell the specified asset. When a binary option expires, the option holder either receives a predetermined sum of cash or nothing at all.

The SEC has received multiple accusations of fraud related to websites that offer the ability to buy or sell binary options using Internet-based trading platforms. There are at least three types of complaints:

• Refusal to credit customer accounts or repay consumers for payments

Customers who have placed money into their binary options trading account are frequently persuaded by “brokers” over the phone to deposit additional amounts into the customer account. When consumers try to withdraw their initial payment or the promised return, the trading platforms allegedly deny their withdrawal requests, refuse to credit their accounts, or ignore their phone calls and emails.

• Theft of one's identity

According to the accusations, several Internet-based binary options trading platforms may be collecting consumer information (including copies of customers' credit cards, passports, and driver's licenses) for unknown purposes. Do not submit any personal information.

• Manipulation of software to induce lost trades

These accusations claim that Internet-based binary options trading platforms modify trading software to skew binary options prices and payouts. When a customer's transaction is “winning,” the countdown to expiration is artificially extended until the trade turns a loss.

Be wary of Binary Options Investment Returns That Are Exaggerated

Furthermore, some binary options Internet-based trading platforms may exaggerate the average return on investment by advertising a larger average return on investment than a customer might expect given the payment structure.

For example, a buyer might be requested to pay $50 for a binary option contract that guarantees a 50% return if the stock price of XYZ business is more than $5 per share when the option expires. Assuming a 50/50 chance of winning, the payout structure is set up in such a way that the expected return on investment is negative, resulting in a net loss for the consumer. This is because the payoff if the option expires out of the money (about a 100 percent loss) greatly surpasses the payout if the option expires in the money (approximately a 50 percent gain). In this case, an investor could expect to lose money on average.

Always investigate a company's or financial professional's background.

Before investing, investigate the background, including registration or license status, of any firm or financial professional you are thinking about working with using the SEC's Investment Adviser Public Disclosure (IAPD) database, which is accessible via Investor.gov, and the National Futures Association Background Affiliation Status Information Center's BASIC Search. If you can't verify that they're registered, don't do business with them, don't send them money, and don't give them your personal information.