What once started as an honest and simple investment instrument has morphed into an unimpressive Binary Options scam. Unlike the numerous reputable Binary Options brokers, many dishonest brokers and marketers have emerged to harm the industry.
This is indeed unfortunate especially for the many traders and brokers who work well and still have a long relationship. However, this is usually the case as the reputation of the masses is harmed by the actions of a few.
Although the responsibility for dishonesty falls squarely on the shoulders of the broker and marketer, the clients themselves have to take some time to understand the broker and software on offer before investing. There are a number of things that one can usually look out for to identify a Binary Options scam. The team at FXaxe have taken the time to dissect a number of scams and identify the common themes.
Some Typical Scams
In order to avoid falling victim to a Binary Options scam, you need to be able to adequately identify one and know how to test unverified claims. Although the below are some of the most common scams in the industry, the list is by no means exhaustive. Given the chance, a scammer will continually adjust his modus operandi in order to grab more gains.
Therefore, it is important to always be prudent when it comes to investing. If you think that an offer or a service sounds too good to be true, then it most probably is and you should do additional research.
Fake Software Offers
Binary Options, like trading in general, should not be seen as a solution to money problems. This is usually one of the main selling points of these scams. They make their software or broker service appear to be a revolutionary product that can make you a lot of money.
If you suspect that the investment on offer appears false, then it probably is. Any investment or service that can guarantee you “risk free” returns with very little effort are usually lying. Any skilled trader knows that successful option trading requires some time commitment as well as a certain risk.
A typical Binary Options scam follows a familiar script. The inventor or owner of the software makes big claims about the success of the program. He will show you a number of trading records and will also get previous users or “beta testers” of the software to sing its praises. We have even seen a Binary Options scam where it claims that the software was featured in articles in the Wall Street Journal or Financial times.
Obviously, when examined there was no trace of these articles on any of these publications. In fact, there was no confirmations of the software’s success anywhere but on its website.
The offer being presented is usually only available for a short period of time and you are encouraged to register immediately. Once you have registered, you are told to register with a broker, deposit the minimum amount and then make “lots of money”.
Something else that we usually see with these software offers are fake client testimonials. These are essentially snippets from verified “traders” on the platform that are singing the praises of the software claiming that they have made so much money from it with relatively little experience.
In the example above, we can see that the traders all look quite photogenic and the photos they have are well taken. There are also spelling mistakes in the testimonials which are not always the best sign. In reality, these are merely fake and should be a big red flag.
In reality, the broker and the software provider are in cahoots and the moment after you have made your investment the software will usually underperform. All the broker has provided is a simple signal following robot that has a worse track record than a learned trader. This means eventually that you will lose your initial deposit to the delight of the broker and the software provider.
The Managed Account
This is usually another well known scam in the industry. It involves the broker offering the trader the services of some “professional” trader who can make them some really impressive returns on the platform trading. This service usually requires a hefty deposit from the trader.
They offer these returns in a “risk free” fashion and can guarantee it. In the same way as it looks unrealistic for the software, this should raise red flags. No trader can ever make such a guarantee. Trading involved risk and this means that nothing can be 100% guaranteed.
These managed account traders are usually colluding with the broker to get you to deposit there. They also embark on fraud by signing some sort of agreement with you where they agree to the payment of the funds at the end of the contract. This is not worth the paper it is written on.
Generally at the end of the investment horizon the trader will lose nearly all of your money in the account and disappear not to ever speak to you ever again. Unless you are 100% confident in the broker that you are about to use as well as the performance of the trader should you ever hand over your account details.
A Binary Options scam that is usually used by the broker is a rigged platform. What this usually involves is a trading platform where the success rates of Binary Option trades are unusually high in trial sessions. However, these win rates reduce drastically once a real account is opened with money invested.
This is done by using platform risk limits. These risk limits are provided by the Binary Option platforms in order to help the broker limit large-scale illiquidity during severe market events
However, unethical brokers will use this tool to impact on traders win rates. When the traders are testing the software out, the broker will drastically reduce the limit. In real accounts, the broker will substantially increase the risk limit such that trades almost always end out of the money.
This is something that is usually hard to spot as you cannot know what success rates will be after investment. This is where broker reviews and research come in. If the broker has indeed tampered with the platform in the past then previous clients will have made news about it.
You can also test the effectiveness of the platform after making only an initial minimum investment and compare it to the performance on the trial version. If there appears to be a discrepancy then you should avoid investing any more money with the broker.
Refusal to Payout
One of the most blatant Binary Options scams is the refusal of brokers to payout a traders funds. We have heard a number of stories about brokers who have either being unresponsive to clients or those who have demanded onerous documentation and identifications.
There can be nothing more frustrating for a trader who has made a success of their investments than denied withdrawal privileges. These are usually also quite hard to identify without extensive research and a bit of testing.
If a broker has refused payouts to previous clients then the clients would most likely have talked about it on forums. If there is nothing available however, then you can do minor tests to determine the brokers trustworthiness. For example, you could deposit a minor amount and make a few trades. Then, you can request a withdrawal of your funds and see how the broker reacts.
If the broker dithers and makes excuses or requests a whole bunch of additional documents, then you know that it could be an issue going forward. If, however, the broker pays out with no questions asked then you know you have an honest one.
Although not technically a Binary Options scam, signup bonuses can create issues for you when it comes to withdrawing your funds. Unlike a plain refusal to payout, signup bonuses are legally binding. You are obligated to trade a minimum amount (usually x times deposit) before being able to withdraw your investments.
That is not to say that a bonus cannot be advantageous for the trader. Assuming that the trader does intend to trade regularly and with volume, then the bonus could be a great way to do that. If you are uncertain about whether you want the bonus, then you should carefully read the terms and conditions that come with it. These will usually lay out the turnover requirements for the bonus.
It is important to note that there are other sweeteners such as “risk free trades” which are similar to bonuses in the sense that they allow you free trades. They will usually also have similar turnover requirements as those of bonuses.
Do Your Research
As any successful trader will know, research does not only start when you have an account and begin trading. It needs to begin when you are choosing your broker and testing trading platforms.
Apart from trying to avoid a Binary Options scam, proper research is needed for a number of other reasons. You would need to know whether the broker provides the desired assets and option types. You would want to find out the standard withdrawal times and the customer service. Essentially, you would be trying to understand whether this broker or service will indeed be the best investment possible with the available information.
If you would like assistance in choosing the best broker, the team at FXaxe has a number of broker reviews to choose from. You could also reach out to us via email to help you with your choice of broker.
Have you Fallen Victim?
If you are reading this and believe that you may have fallen victim to a scam, there are a few things you can do to avoid the risk of loss and possibly recoup any money that you have invested. Even if getting your funds back is not entirely feasible, you could still go a long way to warning potential new victims.
Despite the negative experience you have received from this broker or signal provider, you can’t give up on your quest to improve your trading and generate the required returns. Taking the following steps can help put the scammers out of business.
- Keep all Records. The first and most important step in being able to prove your claims is having all of the documents that were sent to you by the scammers. These include Skype messages, Ts & Cs, emails, bank statements, bonus agreements as well as a history of your trading record. This information can no doubt be used against the scammers should you get a sympathetic ear.
- Request your Funds. If you believe the broker has scammed you and rigged the platform, then you can request to have your funds sent back to you. The broker should honour your request. They may ask for identification and documentation to confirm that you are indeed who you claim you are. You will also need to make certain that you have not taken any bonuses when you signed up. For many of these bonus conditions, you are not allowed to withdraw until a certain trading volume has been met. If, however, the broker is still refusing a pay-out, he is doing so on illegitimate grounds and you should press him further.
- Tell The Community. The Binary options community operates on trust. Other potential clients value the opinion of individuals who have traded with the broker. Make use of online forums and message boards. Let us at FXaxe know about your experience with the broker so that we can include it in any reviews. Many brokers know the damage a negative review can do to their image so there is the chance that the broker may relent if he knows you will harm his name. If the broker is one that cares about it, he will try and address your concern and refund you the money. When you are making these complaints, be sure to give as much information as possible and cover your bases. You do not want the broker to claim that you did not comply with certain terms even though you clearly did.
- Follow the Money. Brokers, like any business, require you a payment provider to facilitate payments between them and the client. It is this payment provider which may be sympathetic to your cause. Assuming that you made the payment via credit card, you could contact your bank and request a charge back. You could tell your bank that you tried to contact the broker but they were not responding. Mention that is was fraudulent and unauthorised. If that fails, you could always reach out to the payment provider and tell them that the broker scammed you and is not refunding. In some cases, the payment provider may withhold any further funds from the broker until this is corrected.
- Alert the Regulator. If all else has failed and the broker is still unresponsive and the payment providers and bank have been unable to help you, reaching out to the binary options regulator of the firm is your last resort. The regulator is the governmental authority which oversees the broker in the region which it operates. It is sometimes not always clear as many brokers are registered offshore and try to hide whether they are regulated or not. If they do claim to be regulated within the EU, then the chances are that they are covered by CySec (Cyprus Securities and Exchange Commission). If the broker is regulated and they value that regulation, they may try and address your concern should you inform them of your intentions. If they appear to be unregulated, you can contact your own country’s regulator and let them know that the broker was providing services in your country illegally.
- Don’t give up. Although you may be tempted to give up in your quest for justice, it is important that you continue to push for justice. Brokers rely on having clients who do not follow up on dishonest practices. They then continue to operate without any sort of oversight. Eventually, if enough clients have the determination to chase the broker, it will either cease operations or reimburse clients. Indeed, this has happened with a number of Binary Option brokers in the recent past.