Any trader worth his salt will have heard of – and perhaps been intrigued by – binary options trading. Marketed across the Internet as an easy way to trade the markets and make money within minutes, companies often use enticing adverts that, for one site, include the wildly inaccurate claim that this was how Sir Alan Sugar made his millions. Through these sites, you have the chance to ‘trade’ just a range of markets including stocks, commodities and currencies, with a simple ‘yes’ or ‘no’ proposition. Simple, right?

Or not. The problem is, it is very hard to consistently predict what a stock or commodity will do within a short time frame – meaning that the ‘option’ amounts to little more than a bet. Let’s be clear – these ‘investments’ are no more than bets. The FCA do not regulate the binary options industry as they do with other financial markets, meaning that despite being marketed as ‘trading platforms for serious investors’, unsurprisingly, most of these sites are scams. There is no easy way to become a millionaire within month and these sites are no exception.

The most recent example of this is Banc de Binary which, earlier this month, was hit by an $11 million fine by American financial regulators after a three year court battle. Evidence was given to a federal court in Nevada that Banc de Binary lied to its customers, claiming that it had a ‘world headquarters’ on Wall Street when all it had was a maildrop accommodation address. In actual fact, the group is based between Cyprus, Israel and the Seychelles. Its CEO, Oren Laurent – also named in court papers as Oren Shabat and Oren Cohen – gave an address in Israel. And unfortunately, in the world of options trading, this story seems to be the rule, rather than the exception.

A quick scroll through message board comments highlights three main problems with these sites. The company encourage you to deposit money – as much as possible – and then when your account has a higher value, refuse to let you withdraw it. They have also been accused of stacking the odds against the ‘investor’, and rewarding clients with bonuses that have stringent terms and conditions attached – usually to the detriment of the investor.

Whilst next to none are regulated by official authorities in the UK, given their gambling characteristics, nearly all are regulated by Cypriot regulator CySec and governed by Cypriot law. As Cyprus is part of the EU, their regulations are supposedly as stringent as other EU countries, including the UK – giving investors peace of mind. But in practise, they are not. The aforementioned Banc de Binary was registered in this way, and was fined no less than five times by CySec – but were allowed to continue in operation until challenged by US regulators. The biggest scam to come out of the country is Cypriot trading platform IronFX. Its CEO is friends with the President – which always helps in a country run on bribery and corruption – but as ex-BBC presenter Freddie Rostand found during an investigation, the company has “serious cash flow issues.” Clients’ money is not segregated, and has even been confiscated by the company in order to pay its debts. Many trading with the platform were unable to withdraw their funds, often amounting to thousands of pounds.

UK Investor Magazine spoke to a trader with a similar story. After being convinced to place a significant amount of money with the options site, despite the company knowing that the trader had little experience in FX and commodities, the account manager bought 50 lots of gold, whose price then tumbled and led to a loss of $113,000.

The company continued to ask for more money, promising that the next trade would make a significant profit. After this proved untrue, the account holder refused to send any more money to the account. The company then stopped taking his calls and blocked him on Whatsapp. He said:

“I tried to call him or the company unfortunately, no one answered. I even asked some friends based in London to contact the company using their phone numbers, but no one replied”.

This company, like many others, is operated by parent company and registered in the UK, but based offshore. A quick browse of Companies House records show that the same officer – and the same address in London – is given for eight different ‘investment’ companies. Its parent company had also filed accounts in January 2016 for a dormant company – essentially meaning that it has ceased trading – but appears to be very much active from its website. Shady? Yes. Surprising, in that line of business? Not at all.

But what is surprising, given the prominence of these sites, is how few negative comments come up with a Google search of ‘binary options scam’. Aside from this article by Forbes – whose prominence even the SEO geniuses behind options trading platforms couldn’t trump – there are next to no articles by large financial news organisations revealing the extent of the scam. In fact, this Financial Times article even actively endorses them. What appears most are sites purporting to review options sites, offering advice and ‘real reviews’ – most of which are presumably run by the options sites themselves, given the lack of bad review. One such site named an options trading platform as FCA regulated – a blatant lie. When I pointed this out it was removed within days – but how many were led astray by this comment up until that point?

However, it is worth remembering that the binary options themselves are not the scam. Some FCA-registered trading sites do offer the ability to trade options, including IG and ETX. Whilst the options trading is still not regulated by the FCA, the companies themselves are and therefore you can be certain that any money you do win can be withdrawn by you. But the bottom line is this: sites offering binary options alone are bad news. At best, the chances of a good return are on a par with online poker – at worst, they’re a scam that will rinse you of your money. They are not legitimate, and they are certainly not an investment. And if you are okay with gambling away your savings, head to Las Vegas and do it there – your chances of winning are the same, and you’ll have a lot more fun doing it.

 

Miranda Wadham on 13/05/2016

For more information on ETX and how you can trade binary options through an FCA regulated company, you can visit their site here.