Common Binary Options Scams
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While binary options are a legitimate financial product, the industry has become plagued by scammers that prey on unsuspecting traders using binary options as a lure. Binary options are often marketed as an easy and quick way to make money, and this can be very appealing to inexperienced traders.
Understanding the common types of scams can help you spot warning signals and avoid falling victim to fraud. Always be wary of any broker offering unrealistic promises or using aggressive sales tactics. Remember, if something seems too good to be true, it likely is.
Note: In many countries, it is no longer legal to offer binary options to non-professional traders (retail traders). Scammers will, as can be predicted, not care much about this, as they are already breaking the law in other ways.
A few examples of common binary option scams
1. Fake Brokers
One of the most common binary options scams involves fake brokers who appear legitimate but are actually fraudulent. These brokers often lure traders with promises of high returns, but in reality, they use unsecure trading platforms and can manipulate data to cheat traders.
After enough users have deposit their funds, these brokers may disappear, making it impossible to recover the money.
Examples of Warning Signs of Fake Brokers:
- No regulation or licensing from recognized financial authorities with a good reputation for trader protection.
- Claiming to be regulated and approved by a certain financial authority without actually being that.
- Overly aggressive marketing tactics.
- Poor or no customer support.
2. Signal Seller Scams
Signal sellers offer to provide trading signals or advice that supposedly guarantee high profits. Traders are often charged large sums of money for these signals, but the information provided is often unreliable or inaccurate, leading to significant losses. Since binary options rely on quick price changes, incorrect signals can quickly deplete a trader’s balance.
Examples of Warning Signs of Signal Scams:
- Claims of guaranteed profits or success rates.
- Downplays the risks.
- Little or no transparency about how signals are generated.
3. Withdrawal Block Scams
Another common scam is the withdrawal block, where brokers allow you to trade and seemingly accumulate profits but make it difficult or impossible to withdraw funds. Some brokers may impose hidden fees or conditions that you were not aware of when signing up, while others may outright refuse to process withdrawal requests. This is a clear red flag of fraud.
Examples of Warning Signs of Withdrawal Blocks:
- Lengthy delays in processing withdrawal requests.
- Excuses or additional conditions for withdrawals after profits are made.
- Hidden fees or withdrawal limits that weren’t disclosed upfront.
Note: Even reputable brokers will need to verify your identity and do a Know-Your-Customer check to comply with international agreements intended to prevent fraud, money-laundering and terror financing. A broker requiring your to go through these steps is not a red flag.
4. Bonus and Terms Scams
Many binary options brokers offer bonuses to entice traders, such as “deposit $500, get a $500 bonus.” However, these bonuses often come with complex terms and conditions. Some brokers will require traders to reach a trading volume that’s virtually impossible before they can withdraw either the bonus or their original funds. This tactic is a trap to keep your money tied up indefinitely.
Examples of Warning Signs of Bonus Scams:
- Large bonuses offered for small deposits.
- Complicated or hidden terms that require you to trade excessively before withdrawal.
- Terms that weren’t explained clearly when the bonus was offered.
- Other traders reporting bonus problems with this broker, e.g. in online forums where trading is discussed.
Note: Some brokers use similar tactics for leveraged binary options trading.
5. Automated Trading Scams
Automated trading software, often referred to as binary robots, is another avenue scammers use. These systems claim to use algorithms to make trades on your behalf and guarantee success with minimal effort. In reality, these systems rarely perform as advertised, and many of them are programmed to generate losses instead of profits, leaving the trader with empty accounts.
Some automated trading scams are operated by independent scammers, while others take place in cooperation with a binary options broker.
Examples of Warning Signs of Automated Trading Scams:
- Claims that no experience or effort is required.
- Downplaying the risks.
- Unverified success rates or testimonials.
- Little information on how the software works.
6. Account Manager Scams
Some unregulated brokers assign traders an account manager who offers to trade on their behalf. These managers will often push traders to deposit more funds or to make high-risk trades, often resulting in significant losses. Once the money is deposited, traders are left with no way to recover it, as the account managers may disappear or refuse to answer requests.
If an account manager is trading on your behalf, with your permission, money lost will not be recovered, and it may not even count as a scam in the yes of the law since you gave this person permission to use your money for high-risk speculation.
Examples of Warning Signs of Account Manager Scams
- High-pressure tactics to deposit more money.
- It is difficult to verify the identity of your account manager and their credentials as a financial advisor.
- Lack of transparency on trading strategies.
- Difficulty contacting the account manager after losing trades.
How to Avoid Binary Option Scams
For retail traders, the easiest way to avoid binary option scams is to stay away from binary options. Many of the stricter authorities that are known for actually enforcing trader protection rules have now banned brokers from offering binary options to non-professional traders. Therefore, non-professional traders that insist on engaging in binary options trading can find it difficult to find any brokers regulated by a top-tier authority.
If you still wish to engage in binary options trading, there are a few things that you can do to reduce the risk of being scammed, but none of these steps will guarantee any protection.
- Try to find a binary options broker regulated by a top-tier or second-tier financial authority. Double-check with the authority that the broker is actually listed with them.
- Research thoroughly. Check the broker’s reputation and read reviews. Beware of the possibility of running into fake reviews.
- Guaranteed returns is a warning sign. Any promises of guaranteed profits are a red flag, as trading is inherently risky. Do not use a broker that downplays the inherent risks of binary options trading.
- Do small deposits and withdraw the money. Find out how the withdrawal process work by depositing a small amount and attempt to withdraw it to ensure the broker’s withdrawal process works. Do not have a lot of money sitting in your trading account, as the broker can change their withdrawal process at any time. Some scammers will approve your small withdrawals, because they want you to feel comfortable enough to make a bigger deposit.
- Steer clear of unsolicited offers. Ignore cold calls, emails, or social media messages offering binary options trading or investment opportunities. Do your own research, develop your own trading strategy, and pick your own broker.
- Do not give anyone else control of your binary options trading account. This includes financial managers, advisors, copy trading, and software for automatic trading.