How to Avoid Fraud in Binary Options Trading

How to Avoid Fraud in Binary Options Trading

Binary options trading has experienced a recent popularity surge, and as a result new online trading sites for binary options are turning up practically every day. Binary options trading is different from other more conventional types of investments, but are still subject to laws governing the buying and selling of assets such as securities and commodities. Unfortunately, many online binary options trading sitesare not registered with any government regulatory or supervising body and as such may not be compliant with federal laws and regulations. More importantly, however, they may be avoiding government regulation in order to take advantage of you. This article will help you arm yourself against the most common types of binary options fraud.

 

 

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What is binary options trading?

Binary options are based on a simple yes/no call: will the value of ABC be at $x or higher at a specified time and date? If the investor believes that the value of the asset will exceed the specified value when the option expires at the specified time and date, he will buy the binary option at the “bid price” (meanwhile, someone else is selling the option at the “ask price”). Before any buying or selling takes place, there is a pre-determined payout for the investor if he is correct in his prediction. For example, let’s say an investor has the option to buy in at $53.00, and the payout is a potential $100. If he is correct when the binary option expires, he will earn the $100 payout and make a net profit of $47.00 (in the money). If he is incorrect, however, he will lose all of the money he invested in the option and be $53 in the red (out of the money).

Common binary options online scams

There are three types of complaints that the main regulatory bodies, the SEC and CFTC, receive quite often about unregistered and unregulated binary options trading sites. The first way that fraudulent binary options sites will scam their customers is by refusing to credit them after a winning trade, while stealing the money that was invested. The second type of binary options scam is luring you in with the promise of big investment gains while actually stealing your identityand personal information. And lastly, some online binary options sites may use software to manipulate the trades so that their customers lose more often than they should.

How to avoid binary options scams

You have to do a bit of homework to ensure you and your money stay safe when you are investing in binary options. You first need to check that the binary options site is registered with one of the proper regulatory bodies:

SEC: www.sec.gov/edgar/searchedgar/webusers.htm and www.sec.gov/divisions/marketreg/mrexchanges.shtml

CFTC: http://sirt.cftc.gov/SIRT/SIRT.aspx?Topic=TradingOrganizations&implicit=true&type=DCM&CustomColumnDisplay=TTTTTTTT

Lastly, and this is useful for traders in all markets, you need to confirm the registration status and background of the bróker, brokerage, investment firm or financial professional you are going to invest your money with.

FINRA BrokerCheck: www.finra.org/investors/toolscalculators/brokercheck/

BASIC Search: www.nfa.futures.org/basicnet

If you can’t find your trading site registered with a regulator body or can’t confirm their status via one of the brokerage search tools, don’t invest any money with them and don’t share any personal information with their site.

Use Binary Options to Trade Forex

Binary options are another tactic to trade forex, as well as other commodities and securities. Although they cost relatively more than the leveraged spot forex trading offered by more and more brokers, the major advantage of binary options is the fact that the maximum potential loss is limited and specified in advance. While leveraged forex trades offer potentially higher profits because of the leveraged capital, the losses are also multiplied significantly and unknown at the time the order is called.binary-options-trading-broker

What are binary options?

Binary options have a binary outcome, that is, when the option expires, they either settle at a pre-determined payout value (generally $100) or $0. For the buyer of a binary option contract, the cost of the option is the bid price at which the option is trading. For the seller of the contract, the cost is the difference between 100 and the option price. The buyer receives his payout from the seller if the asset is trading at or above a predetermined value at a predetermined time. If the asset is trading below that value, the buyer loses the amount they paid for the contract, which goes to the seller.

From the buyer’s point of view, the price of a binary option can be considered as the probability of the success of the trade. So, as high the binary option price gets, the perceived probability of the asset price rises above the strike. From the seller’s view, the probability is 100 minus the option price. All binary option contracts collateralize completely, which means that the buyer and seller have to decide the capital for their side of the trade. For example, if a binary options contract is trading at 45, the buyer pays $45, and the seller pays $55 ($100 – $45). This is the maximum risk of both sides, and equals $100 in all cases.

How are binary options traded?

There are a number of assets and securities in the US that are available for trading using binary options. A binary option’s value is derived from an underlying security or asset. The purchaser of the binary option contract does not own the underlying security, nor have claim to it. Yet, the binary option’s worth is based on the movements of the underlying security price. Binary options offer an alternative way to trade these underlying securities that include stock and volatility indexes, forex currency pairs, and commodities.

Binary options are traded through the Nadex exchange and the Chicago Board Options Exchange (CBOE). Nadex provides the majority of binary options trades in the country; its binary options are traded through its own self-maintained trading platform, and an external broker isn’t needed. The CBOE offers two binary options products:binary options contracts are limited to the S&P 500 and Volatility Index. Clients need a standard brokerage account with options trading capabilities to trade these products through the CBOE. Online binary options trading sites do exist, but must be used with caution; many of these sites operate illegally and are not regulated by the SEC or CFTC, and fraud among such unregulated sites is not unheard of.