Binary options trading scams

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Police say that people caught out by binary options trading scams are losing an average of £26,000. So what is binary options trading and how do you know if you’re being scammed?

Binary options trading explained

Binary options trading is basically financial betting. You don’t buy shares, but instead you bet that the price of a share (or foreign currency – or another asset) will rise or fall by a particular date.

So, for example, if you bet that a bank’s share price will rise by a certain date, and it does, you’ll get a payout. If it falls, you’ll lose money. Binary options trading is only for people who are happy (and I mean, genuinely comfortable) with the idea of losing everything they bet. It may be advertised as a sure-fire way of getting a great return but it’s anything but.

Types of binary options trading

There are different types of binary options trading. Here are a couple of the main ones:

  • High/low binary options trading: You bet (called ‘taking a position’) that a particular asset will rise or fall by a specified date.
  • One touch options: You take a position that an asset’s price will be above or below certain thresholds. The easiest way to explain this is to give an example. So, say a bank’s share is trading at 200 pence. The thresholds may be set at 240 pence and 160 pence (40 pence above and below the share’s current value). With a one touch option, you bet that the shares will either rise above 240 pence or fall below 160 pence.

SAVVY TIP: The price doesn’t need to stay at that level in order for you to collect a payout.

What is the scam?

Binary options trading in itself isn’t a scam, although it’s not investing – it is betting on the markets. Crucially, binary options trading isn’t regulated by the Financial Conduct Authority (FCA). This means that claims the binary options trading companies make don’t have to comply with certain standards and you can’t complain for free to the Financial Ombudsman Service if you can’t get your issue resolved with the company itself.

According to the financial regulator, the FCA, there are several ways that this could be a scam:

  • The binary options trading company pretends to be based in the UK, when it isn’t.
  • Software may be used to distort the price.
  • Promised payouts aren’t made.

SAVVY TIP: Binary options trading may be advertised on social media, such as Facebook and may promise amazing payouts. Some of them have also implied they’re endorsed by Martin Lewis of Moneysavingexpert (they’re not). As the claims the binary options trading companies make aren’t regulated by the FCA, they can say pretty much anything they want without any comeback unless they’re caught and taken to court.

How much could I lose?

You could lose a lot of money if the firm you’ve done the binary options trading through disappears. The City of London Police say that nearly 700 people lost (were defrauded of) an average of £26,000 each, and that’s just in the first six months of 2017 alone. One man lost all his savings – £300,000.

Legitimate binary options trading companies

There are legitimate companies offering binary options trading, but it’s worth saying again that they’re not regulated like pensions providers, stockbrokers and investment companies are. The FCA says that if you are thinking of binary options trading and the company is based in the UK, you should check that it has a current from the Gambling Commission, so it’s able to offer bets in binary options.

The problem is that rogue firms can ‘clone’ others so they look like they’re legitimate.

SAVVY TIP: I would personally not get involved because I don’t really want to bet my money. I would also never part with my money based on a cold call. In my view, cold callers are either fraudsters, rogues or – at best – keen on the hard sell. Why do business with them?

Related articles: 

How to avoid investment scams

Bank frauds and scams to avoid – how to reduce the risks of being a fraud victim

How not to fall for pension scams and to keep your pension safe

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