Binary Options Scams
Binary options scams are rife. Unscrupulous individuals are capitalizing on the increasing interest in retail investing alongside easy access to prospective traders on social media. Regulators now believe binary options scams have claimed thousands of victims worldwide, from beginners through to seasoned investors.
In this guide, we list common binary options trading scams and explain how to avoid untrustworthy sites and firms. We also cover what to do if you think you have been scammed.
Top Recommended Binary Options Brokers for United States
Binary Options Scams Explained
Claims of ‘huge profits’ and ‘unrivalled payouts’ are commonplace on Instagram, Facebook and other popular social media channels. However, many of these adverts are misleading and untrue, and often they form part of fraudulent schemes that aim to strip investors of their capital. The problem is so serious that the UK’s reporting centre for fraud estimates that individuals are losing over £85,000 a day to binary options trading scams.
The level of sophistication and contact method may vary, but the basic pretence is the same; suggestions that huge profits can be made with limited investing experience or skill. Prospective traders are encouraged to make large deposits before learning that a) turning a profit is extremely difficult based on the products and trading conditions offered, plus b) many firms refuse to process withdrawals, effectively stealing clients’ funds.
Popular Binary Options Scams
Many scams adopt the same tactics for finding new victims and stealing their capital. The following list contains examples of common binary options scams.
Social Media Approach
Binary options trading scams are often advertised through social media channels such as Instagram and Twitter. It is common to receive messages from strange accounts where you are promised consistent profits with little or no risk. Frequently, they will use recent news as reasons why you should invest now. For example, using the announcement of a new iPhone to capitalize on the fluctuations of Apple stock prices.
Importantly, if you can’t see licensing details or official credentials, steer clear.
Untrustworthy Brokers
There are many shady brokers online today. It is increasingly easy to create a professional-looking website that seems trustworthy. However, these websites will often omit information regarding the fee structure or withdrawal process. Upon digging, the website may also have very limited information sat behind dazzling visuals and big profit claims.
Portfolio Management
Another common binary options scam is where you hand over your capital to an ‘experienced’ trader who will manage your investments. The general idea is that this person will execute binary options trades on your behalf, meaning you do not need to put in time and effort. In reality, they may take the initial deposit for themselves and never let you withdraw anything.
A good example of this is TB Options Limited, which advertised itself as a binary options broker based in the City of London. Customers were promised 20% monthly profits after a £5,000 initial investment. Clients were then told they would have to wait 12 months before they could withdraw funds. In total, the brokerage defrauded investors out of approximately £475,000.
How to Avoid Binary Options Scams
But while fraudsters may be lining up to trick retail traders out of their cash, regulators are clamping down on unscrupulous firms and there are straightforward steps that investors can take to protect themselves:
Use Trusted Brokers
Reliable brands hold licenses with recognized regulatory authorities, such as the Australian Securities & Investments Commission (ASIC). Top-tier regulators insist that brokerages and trading sites follow measures designed to protect traders, including providing negative balance protection (so you can’t lose more than your account balance) and separating client funds from the broker’s capital (meaning you can get your money back if the brokerage goes bankrupt). If a binary options broker behaves inappropriately, traders can also make an official complaint and regulators have the power to take action, from revoking licenses to issuing fines and blacklisting providers.
To verify that a broker is regulated, you can check their license number on the respective agency’s website. Alternatively, you can usually search for the company name on the watchdog’s online register. The Investment Industry Regulatory Organization of Canada (IIROC), for example, has a public registry with approximately 175 trading firms that it oversees. If a binary options firm claims to hold a license but you cannot find them on the regulator’s official website, they may be running a scam.
Note, the UK Financial Conduct Authority and the European Securities and Markets Authority have banned the sale of binary options to retail traders. Therefore, UK and EU-based traders will need to sign up with an offshore or unregulated broker. Investors should then make use of customer reviews and ratings to find a reliable brand. See our list of recommended binary options brokers here.
Check Blacklists
Regulators also publish blacklists of firms that should be avoided. These are typically brokers or individuals who are known to have carried out scams or fraudulent activity. If you are unsure about a potential provider, check their name on a binary options scam list, for example, the FCA Warning List.
Read Customer Reviews
Another helpful indication of a broker’s reliability can be found in trader reviews. You can often find opinions on TrustPilot and social media platforms, such as Discord, Reddit, Telegram and Facebook. Of course, keep in mind that these are only opinions and platforms may be used by disgruntled customers to spread exaggerated stories. Also be aware that some fraudulent binary options brokers post fake positive reviews.
We also review and rate individual binary options brokers to help new traders find reliable brands. We take a fact-based approach, exploring the range of contracts available, the transparency of fee schedules, the level of customer support and more. See our list of top picks here.
Have a Risk Management Plan
Adopting a strategy where you never invest more than you would be comfortable losing can reduce the impact of a scam broker. For example, with the 1% technique, you only invest a maximum of 1% of your total capital on a single position. This way, if you are exposed to a binary options scam, only a small proportion of your total funds will be lost. This can be an effective way to test a binary options platform before adopting a higher-risk trading strategy with more capital.
Trust Your Instinct
It sounds cliche, but if something sounds too good to be true, it probably is. Many binary options scams advertise a trading system that generates massive profits with very little risk. Unfortunately, trading on traditional financial markets does carry a level of risk and many traders lose money, so be wary of exaggerated claims. Even successful veteran traders will tell you that there are no easy wins.
Steps to Take if you Have Been Scammed
Submit a Tipoff
Regulators such as the Commodity Futures Trading Commission (CFTC) in the USA ask traders who have fallen victim to binary options scams to submit a tipoff. For this, you will need to provide information such as how you came across the scam, what was advertised, and how much money you lost. This way, the regulator can act quickly to shut down the fraudulent broker to prevent others from being scammed. Most large financial regulators have an online form on their website which can be used to submit a complaint.
Note, regulators cannot always ensure that stolen funds are returned.
Bank Chargeback
Your bank or credit card provider may offer a chargeback service whereby your transaction can be reversed. You can use free online services such as MyChargeBack.com for advice on your specific case. It could also be worth engaging other binary options traders on social media forums to see if users managed to retrieve their funds.
Note, a chargeback is often at the bank or payment provider’s discretion and so it may not be permitted.
Be Aware of Follow-Ups
Now that binary options scammers have your contact details, you may be targeted again. This could be by the same fraudulent broker asking for more capital or a different scam altogether. With this in mind, you should block the contact details of the firm or individual from the initial scam. You should also be careful when receiving future phone calls, social media messages or emails from unrecognized accounts.
Bottom Line on Binary Options Scams
It is easy to think that only novice traders fall for binary options scams. However, anyone can be tricked, even those with years of trading experience. Fraudulent websites and scam brokers are becoming increasingly sophisticated and convincing. With that in mind, carefully research potential providers before opening an account and depositing funds. Also check that brands are regulated in the jurisdictions in which they operate and look at online reviews.
FAQ
Are All Binary Options Brokers Scams?
Not all binary options brokers are fraudulent. There are many that can be trusted and provide an excellent trading experience. The key is doing your research before registering for an account. See our list of trusted binary options brokers to get started today.
Are Binary Options Legal?
Online brokers can offer binary options to retail traders in many countries and jurisdictions. However, there are some countries where the marketing and sale of binary options products are restricted. These include the UK and Europe, among others. Investors in these regions may need to sign up with an offshore provider.
How Can I Confirm That A Binary Options Broker Is Trustworthy?
You should first check if the broker is regulated and if the license number is legitimate. Also read customer reviews to see other traders’ experiences with the platform. Moreover, ensure that the broker has clear and easily accessible information regarding the deposit and withdrawal process, plus any charges.
How Do Binary Options Scams Work?
Binary options scams usually work by pulling you in with promises of unrealistic profits. For example, it is common to see adverts with traders talking about how they earned $10,000 in a week using a simple trick. You will then be asked to make a deposit to their brokerage account, which can then be used for trading. However, it is very unlikely that you will be able to withdraw this initial deposit, along with any supposed returns.
Are Unregulated Binary Options Brokers Scams?
Not all unregulated binary options brokers are scams. If they are unregulated, it simply means there is no oversight from a recognized authority, which may be because of operational considerations. If a brokerage is unlicensed, take extra care when signing up for an account. Also check reviews from other binary options traders. See our list of recommended binary options brokers to start trading today.