A fair bit of spotlight/scrutiny has been placed on binary options in the past years, with warnings issued from central banks such as the MAS (MAS-Cautions-Investors-on-Risks-in-Trading-Binary-Options-with-Unregulated-Platforms, SEC warns against Binary Options and scams such as the-wolves-of-tel-aviv-israels-exposed.
Likewise, we hope to take this chance to educate investors on this highly risky investment product and advise everyone to think twice before hopping on this bandwagon.
What are Binary Options?
For those who might have chanced upon a Binary trading advert or some sort of get rich scheme, you might be familiar with the below:
Trading with Binary options is to predict whether a stock, or an index, or a commodity or a forex pair, would go up or down within a certain time frame.
Binary options "are based on a simple 'yes' or 'no' proposition: Will an underlying asset be above a certain price at a certain time?
Correct, you are NOT actually buying anything, you don't wait for something to go up and sell at a profit, not at all. You invest in putting down an option that, for example OIL, will have increased in price by the time your option expires, or the other way around, that it will close lower.
If you are right, you will make a profit of 65-90% on your invested amount.
These option time frames can be as little as 30 seconds, to 2 minutes, to 15 minutes, to 1 hour, .... It all depends on what you chose.
Is it a scam?
Short answer is yes & no.
In fact, it is not a scam when u consider that Binary options are in fact about as legitimate as your roulette wheel or soccer betting. Also, Binary options are simple to digest and much easier to peddle as a "transparent trading instrument", thus attributing to its popularity.
However, very often, you end up taking the other side of the market as your broker, i.e. If you win, the broker loses and vice versa. This creates a skewed conflict of interest and their ability to adjust the payout ratio (Odds/multiplier) amplifies that.
The scam comes in when certain brokers get greedier and you start seeing instances like refusal to credit customer accounts or reimburse funds to customers; identity theft; and manipulation of software to generate losing trades.
Do not trade Binary Options.
Long story short, you have no business dabbling with binary options. You run the risk of dealing with an illegitimate broker and even if you manage to find a proper broker, you end up facing insurmountable house odds with negative expected value.
If the gambling bug bites, you might just be better off playing the lower house edge games in the casino like baccarat or blackjack.
In conclusion, there is no quick and easy money to be earned. Instead, do your homework and read.