They’re known as the ultimate gamble in trading markets. They’re called binary options, and they’re an all-or-nothing bet. Because they’re the kind of investment that attracts risk takers, they’ve also become a favourite investment to build a scam around, and if you are going to invest in binary options, you need to be aware of how much illicit activity is going on in this space and how to avoid becoming a victim of it.
Binary options are “bets” that can be made on share prices, foreign exchange movements, markets, or economic events. A simple example would be to bet on the share price of a company; you could take out a binary option saying that a company will be trading above its current price in an hour. If you’re right, you get a payout. If you’re wrong, then you lose the entire sum of the investment.
Binary options are always short-term. A typical contract will be for an hour or so into the future, though they could range for as long as a few months.
One of the appeals of binary options is that they are very easy trades to understand and make. You don’t need to be a particularly skilled or experienced investor to take out a contract. On the other hand, successfully picking the short-term movements of stock prices, or whatever else you’ve placed the “bet” on can be exceedingly difficult, even for professional investors.
It’s for this reason that even within legitimate binary options trades, around 80 percent of investors lose money. They’re such a high-risk investment that many markets ban them entirely. In making the decision to do that, the Australian watchdog, ASIC, wrote “‘Binary options’ product characteristics make them incompatible with investment or risk management use by retail clients. ASIC’s product intervention order will protect retail investors from these harmful products at a time of heightened vulnerability.”
That’s not to say you can’t take out binary options contracts. It just means you’ll need to find the right platforms and brokers for it.
One final thing to note: binary options are often particularly appealing to those on lower or award incomes, as the potential payoff can be a big boost to the pay. For these people it’s particularly important to keep the following in mind:
Binary options fraud often begins when an “agent” approaches you on social media. They’re active in social media groups, and will often direct you to a website that for all intents and purposes appears legitimate. You’ll probably never speak to them, much less meet them, in person. From there, you’ll set up an account and take some options out without an issue. But then one of three things will happen:
Finally, a less insidious trading platform might be genuine about the payouts but be massively overstating the average return on investment, to lure people in, but end up paying them less. It works like this: A customer pays $50 into a binary option contract that promises a 50 percent return if the stock price is at a certain level when the option expires. Assuming it’s a reasonable target and there’s a 50/50 chance of winning, in the long term this structure will result in a net loss to the customer.
If the customer wins, they get $25 from the 50 percent payout. If they lose, they lose $50. Over the course of 10 investments, with half winning and half losing, they would have spent $500, lost $250, and got $125 in winnings – in other words, for a $500 investment, they would now only have $375.
There are legitimate platforms that have payouts close to or in excess of the 100 percent they need to be for you to have a break-even result on an average day. Here is a list of some of them.
However, even with the very best binary options platforms, it is important to remember that these are speculative investments, and you need to be very, very good and familiar with the market if you hope to turn these investments into anything more than a complete throw of the dice. The payouts might seem to be large – and they potentially can be – but at the very most these should account for a small amount of your overall wealth and portfolio.