Forex binary options have been on the rise in the past few years, as this type of trading can enable investors to bag profits in a short span of time. As discussed in our School of Pipsology lesson on binary options, a pre-determined payout can be made if price is in-the-money while losses are limited to the purchase price or premium if it’s out-of-the-money.
Because of this simplicity, binary options have been known as all-or-nothing options, although there are still some subtle differences on how payouts are calculated. Of course if you’re not knowledgeable about the various kinds of binary options, you might be more prone to getting razzle-dazzled by a fraudulent broker!
Unlike spot forex trading which has watchdogs from the CFTC and NFA, binary options get relatively less oversight from regulatory agencies. To make things more complicated, financial regulators say that there is a very fine line between binary options trading and gambling.
In the United Kingdom, binary options operators currently need to be regulated by the U.K. Gambling Commission (UKGC) in order to offer their services in the country. However, this is set to change soon, as the government plans on classifying binary options as a legitimate form of financial trading, which means that these brokers will be overseen by the Financial Conduct Authority (FCA).
In line with this, the U.K. government has launched a new Financial Services Register to help the investing public gain easier access to information on financial firms and brokerages. With this, traders can be able to identify which ones are scams and which ones regulated by the FCA or the Bank of England’s Prudential Regulation Authority.
In other parts of the world, authorities are also stepping up their efforts in cracking down on binary options scams. In France, financial market regulator Autorité des Marchés Financiers (AMF) has been regularly updating its blacklist of websites that “offer binary options trading for which no authorized investment services provider could be clearly identified.” Apart from that, the AMF reminds retail investors to be wary of brokers engaging in aggressive online advertising efforts to lure people into get-rich-quick schemes. Hong Kong, as well as Canada’s provincial financial watchdogs, has also been issuing warnings against binary options firms offering products without the proper licenses.
Aside from making sure that your binary options broker is properly regulated, be wary of those offering huge deposit bonuses or expensive gadgets for opening an account. These rewards might be subject to withdrawal limitations preventing the client from liquidating any funds unless a certain level of trading volume has been reached.
At the end of the day, the right education is your best defense when it comes to potential scams. Do your research yo!