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Binary option trading is increasingly popular option for home-based workers with an eye for investments, but while binary options contracts themselves are pretty simple and straightforward, many binary options brokers are not. Binary options scams are alarmingly common, but easy to avoid if you know what to look for. Here are a few scams every binary options trader should be watching out for.
1. Poor Regulatory Environment
Financial markets in most parts of the world are highly regulated, and for good reason. Even the simplest trading exchanges can be incredibly complicated, which makes them very susceptible to fraud.
In a well-regulated financial environment, scams are easy to avoid and victims have clear recourse for pursuing claims against rogue (or unethical) companies. Unfortunately, not all countries provide that kind of regulatory oversight.
That's why - and we'll be repeating this point over and over - binary options traders need to research their trading partners before sending them cash.
Credible binary options brokers are registered with legitimate regulatory bodies, so finding information on them shouldn't be too tough. The key here is to actually perform plenty of research before making a deposit anywhere. If a trading platform says they're registered in a certain country, make certain that this is true. (We don't want to alarm you, but sometime people on the Internet say things that aren't true.)
2. Under-capitalized Trading Sites
Binary option trading sites are a lot like casinos. They need to have enough cash on hand to cover every contract they've got out at any given time.
A lot of fly-by-night brokers, unfortunately, bet against their customers by not staying liquid enough to cover their exposed risk. Most of the time this isn't a problem, but it doesn't take too many hot traders to bring down this house of cards.
So how do you know how liquid your broker is at any time? You really can't. But if you've done your research, read reviews, speak thoroughly with the broker’s customer support staff, then you can avoid the sites that pull this scam year in and year out. We'd also recommend sticking with trading sites that have been certified by industry watchdog groups.
3. Deposit Bonus Trickery
Most binary trading sites offer deposit bonuses of one kind or another to encourage new sign ups. While most of these offers are perfectly legitimate, we'd encourage readers to take a very close look at the fine print.
When you look closely you'll find that using that bonus money is pretty easy, but collecting on it can be pretty tough.
It's very common for binary options sites to require a 2x or 3x turnover before bonus money can be collected. That means you'll have to risk 2 or 3 times the amount of your original deposit before that bonus money is yours.
While bonus offers aren't necessarily a scam, they're definitely one more factor new traders need to research.
4. Terms & Conditions Scams
Remember the neighborhood kid who always changed the rules of the game halfway through to turn the odds in his favor? He’s alive and well and running a website somewhere.
Plenty of rogue binary option trading sites have no qualms about changing their Terms & Conditions when things aren’t going their way. (You did read those carefully when you first signed up to the trading platform, right?)
Be sure to watch out for clauses in the Terms & Conditions (T&C) that allow for retroactive changes, especially when it comes to payouts. Taking a few minutes to read them now can save you major headaches down the line.
5. Finding an Honest Broker
Now that you know some of the most common binary options scams, here are a few parting tips to help you on your way:
- Do your homework - Spend some time on binary option trading forum and get to know which sites can be trusted and which ones to avoid.
- Use the demo - Most sites allow new users a short practice trial period using demo software. Take advantage of this opportunity to make certain you're comfortable with how the site operates.
- Do the math - Traders on a site that's offering the 70% win/85% loss scenario from earlier in this article would need to win around 55% of their contracts to make even a small profit. While that's not necessarily unusual, it's an important to know for your long-term planning.
- Don't trade with money you can't afford to lose - This rule applies to gambling and investments of all kinds. Use your rent money for rent and use your extra cash for binary trades.
Binary options trading is a perfectly safe method for playing the market, so long as you stick with honest broker sites. Simply follow the five tips above, and your trading should be safe and sound.