Identifying Binary Options Scams

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Binary options trading is an agreement between a buyer and a seller to pay the trader a predetermined amount once certain price conditions are met, based on the way price activity has developed over the life of the contract.  When the contract expires, the trader will receive a payment if the contract is “in the money,” which essentially means that the trader’s original price forecast was accurate.  If the contract expires “out of the money,” the trader will not receive a payment. 

In essence, this means that trading with binary options will result in one of two possible scenarios, with the trader either making gains or receiving no payouts.  Because of this, and because binary options trading is seeing tremendous growth in popularity, it is important for new traders to deal with reputable brokers and avoid scams so that accurate payouts are disbursed and nobody is taken advantage of because of their inexperience. 

Separating Quality Brokers from Scammers

Unfortunately, it can be difficult to identify scamming brokers from qualified and reliable establishments because in general, these companies don’t last long and can pop up in new incarnations at any moment.  So, in order to separate the good brokers from the bad, there are some key features that should be given special attention.  The first signal that a binary options platform is not legitimate can be seen when traders are guaranteed returns in excess of 75%.

Some might argue that there are legitimate platforms that can enable returns of this size, it should be remembered that this is unlikely and these promises should be viewed as a red flag.  Any time guaranteed returns are offered by a brokerage firm, other options should be considered.  Another brokerage scam occurs when brokers request that their clients invest funds in assets for which they have a direct interest.  Many new traders lose money when the brokerage firm later decides to take profits early, without informing their clients and this can lead to unexpected volatility and surprising price movements.

Avoid False Guarantees

Another practice of scamming brokers is to offer clients an added enticement of a money back guarantee during losses.  The amounts for this money can vary but are often seen in the amount of 15 percent.  While this sounds like a protective and secure possibility, it should be remembered that the worst case scenario still results in a loss of 85 percent, which should be thought of as unacceptable.  Guaranteed returns can never be legitimately offered as nobody can realistically predict price movement in the asset markets as a 100 percent accuracy rate.

The well-known maxim “if it sounds too good to be true, it probably is” could not be more applicable to binary options trading as there will always be disreputable people trying to make money off of inexperienced traders.  Even if a company can offer one or two profitable trades in a row, this does not necessarily mean that these results will continue over the longer term.  Review sites such as www.binaryoptionsthatsuck.com offer honest and reliable assessments of brokers so that new traders can help to make the most informed decisions. 

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About:Richard Cox

Richard Cox is a university teacher in international trade and finance. Lessons in macroeconomics and price behavior in equity markets. He writes for MarketBulls.net, BinaryOptionShark.com, TheStreet,Seeking Alpha, and the Motley Fool.Investing strategies in these articles are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies, and commodities). Trade ideas are generally suggestive of time horizons of one to six months.

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