If you’re interested in investing your money in Binary Options, I really recommend first reading a paper published by the US. Securities and Exchange Commission where they reveal the dirty truth about how the Binary Options internet platforms operate and just how problematic to downright fraudulent most of these companies are. In this article I will go over the most important facts, but you should definitely read the entire publication here.
What exactly is ‘Binary Options’?
Binary Options is a type of options contract where, unlike in the more conventional options, your payout will depend solely on the outcome of a yes or no position where the yes or no positions typically mean whether the underlying asset increases or decreases in value within a specified time frame.
How do Binary Options work?
Did I just make your head hurt? Don’t worry, the general idea behind Binary Options is usually pretty straightforward. Let me explain by using a real world example:
Imagine a BO company that is trading the Facebook stock. They will ask clients to predict whether the stock will get cheaper or more expensive within 12 hours and the client is then supposed to make an “up front” payment along with their prediction.
Contrary to what many believe or want to make you believe, it’s actually very similar to betting either on red or black on a roulette table.
Fast forward 12 hours and the results are in- Facebook’s stock has gained value. Now the people who chose “yes” will receive a monetary reward along with their initial “bet” and the people who chose “no” are left sitting empty handed. Because of this Binary Options are sometimes referred to as all-or-nothing options or fixed-return options.
You lose money in the long run
The most important fact to wrap your head around is that the monetary reward in most Binary Options is not 100% for predicting the price of an asset correctly whereas the loss will almost always be 100% of your investment. Therefore, given a 50/50 chance, the payout structure is built in a way where the investor can in fact expect a negative overall profit.
Here’s a real world example:
Suppose you make a deposit of $100 to your favorite BO and decide to predict the Facebook’s stock by choosing “yes” and investing $50 hoping that the price will rise.
Time passes and you realize that the stock has actually lost value which means you have just lost your whole deposit of $50 (100% of your investment).
Now suppose you invested another $50 and this time the cosmic powers were in your favor and made it so your prediction was correct. You won, but it’s no time to celebrate as you’ve only received back 50% of your deposit ($25) along with your initial deposit of $50 leaving your total account balance at $75.
When you repeat this process long enough, it’s statistically more likely that you will end up with absolutely nothing compared to walking away with a profit.
Did you know that casinos are based on the same exact principle? That’s where the saying “the house always wins” comes from. Here’s something to think about if you’re a tinfoil hat kinda guy: what if the recent Binary Options madness is happening because online casinos were made illegal in the U.S?
Most Binary Options operate with absolutely no government oversight
There are only a handful of Binary Options companies who operate with a government issued license. Most online platforms are unregulated and nobody really knows what’s going on behind the scenes.
This is why the SEC and CFTC have received countless complaints about fraudulent activities involving Binary Options from plain and simple identity theft to manipulating the software to generate losing trades.
Clients can’t withdraw
A common scenario that many uninformed investors face is that a company would cancel their withdrawal requests for no apparent reason, stop responding to phone calls or emails and in some cases start demanding scans of government issued ID’s, utility bills and bank statements by claiming they need to do additional identity check on the client.
Because most of the BO’s out there aren’t official government entities or financial institutions, they have absolutely no legal right to demand these documents in the first place which leads us to the next most commonly reported issue: identity theft.
You simply never know for sure whether they take any precautions when storing your files, if they even care or worse, if they sell these on the black market.
Finally the third widely reported case involves simply manipulating the trading platform’s software in order to generate losing trades. For example, if a trade seems to be “winning”, an unlawful company would artificially extend the countdown towards a trade closing event until the trade becomes “losing” for the client.
Food for thought
As you can see some of the above issues you can potentially face are not just unethical, but downright illegal. Unfortunately many people from all over the world get caught up with illicit financial trading companies promising life changing results and generally advertise their services as a means to get rich and retire at a young age when in reality such promises are simply untrue.
Why do you think the referral programs and sponsorship packages are so popular among Binary Options? You get paid to bring in new gullible investors who will lose their money.