For years, binary options scams have plagued financial markets, dealing blows to countless unsuspecting traders along the way. European Union regulators took a decisive step against binary options trading a few years back and banned it to protect investors from fraudulent schemes. 

A binary options scam involves deceitful practices by brokerage websites promising lucrative returns on investments in binary options systems. These operations typically target inexperienced traders looking to make profits overnight as they are susceptible to alluring promises of quick money.

Our article explores the illicit nature of binary options scams, how they work, and what individuals should do if they fall prey to these schemes.

What Are Binary Options?

Before we tackle the fraudulent practices, we must first explain what the binary options trading system is. In essence, it’s a type of financial derivative that enables traders to speculate on the direction the asset’s price will take within a certain time frame. It can go either up or down, hence the name. 

Unlike some traditional options, binaries feature a fixed payout and expiry time. To earn a profit, traders must correctly predict whether an asset will rise or fall in price by the specified expiry time. 

How Are Binary Options Traded?

In order to engage in binary options trading, users must select an asset (i.g. stocks, commodities, or currencies) and predict whether its price will rise or fall within a predetermined time frame. If correct, they will receive a fixed payout. On the other hand, wrong guesses will cost them their investment. They don’t hold the asset.

That’s it. The concept is relatively simple, which is why many inexperienced and newbie users opt for such systems. It’s also the reason why scammers prefer to misuse it to deceive traders and take their money.

So are binary options a scam? Not necessarily, but such systems tilt in the broker’s favor as it inherently depends on whether the firm can profit from losing trades before they expire. It was considered a purely theoretical asset pricing, with a large number of binary options scam brokers engaging in fraud due to the lack of regulation. 

The payout structure also benefited the provider more than the trader; correct trades brought the former a cut, while incorrect guesses resulted in the latter losing the entire initial investment. All these factors prompted the European Securities and Markets Authority (ESMA) to prohibit binary options in 2018.

Are Binary Options Legal and Regulated?

Although binary options trading has been banned or restricted in some countries due to its high-risk and speculative nature, highly reputable jurisdictions allow it. “Binary options are legal and available to trade in the U.S. but they must be traded on a regulated U.S. exchange,” says the U.S. Commodity Futures Trading Commission (CFTC).

However, the American regulator warns traders that “a substantial number of binary options are traded through online trading platforms. These websites often do not comply with U.S. regulatory requirements. In fact, the increase in the number of these platforms has led to an increase in binary-option-related fraud complaints to the CFTC.”

Common Types of Binary Options Scheme

To execute a binary options scam, duplicitous providers use several malicious tactics. They typically conceal their true identity and hide behind the promises of hefty profits. There are multiple ways to find and entice potential victims.

Fraudulent social media campaigns are pretty common. After gaining their trust, the scammers redirect them to illegal brokerage platforms or promise to manage their accounts for them.

Unregulated Brokers

Nearly all binary scams feature unregulated brokerage platforms that operate without regulatory oversight. They can easily vanish with investors’ funds. As mentioned, binary options trading is legal but only on regulated exchanges facilitated by registered entities. 

When phony brokers manipulate prices, it turns into a binary options software scam. The Securities and Exchange Commission (SEC) gives an example “when a customer’s trade is ‘winning,’ the countdown to expiration is extended arbitrarily until the trade becomes a loss.” Or, they may refuse to pay out the trader.

Fake Social Media Ads

To reach unwary victims, scammers often resort to social media platforms. These platforms are swarming with wrongdoers promoting fake binary options trading and baiting traders with fake testimonials and allegedly effortless profits. 

The ads they post may lead to bogus sites that mimic legitimate and transparent trading platforms. Beware of unsolicited messages promoting quick earnings through binaries.

Managed Account Scam

Cyber thieves might offer to manage users’ accounts since they are self-proclaimed experts. To gain permission, they promise unrealistic returns with minimal risk. Once traders fund their accounts, the fraudsters disappear with the money, leaving the former clueless.

“When customers later attempt to withdraw their original deposit or the return they have been promised, the trading platforms allegedly cancel customers’ withdrawal requests, refuse to credit their accounts, or ignore their telephone calls and emails,” the SEC points out.

How to Recover Money Lost to Binary Options Broker Scam?

By exercising caution, you can avoid losing money to shady brokers and anonymous frauds lingering online. Be sure to read binary options scam reviews on forums to distinguish legitimate providers from financial swindlers. Check whether your firm appears on warning lists on regulatory websites. 

However, if you suspect you’ve fallen victim to a scam, consider the essential binary options scam recovery steps. First and foremost, call your bank or credit card issuer and report the fraud. Request a chargeback to reverse credit/debit card transactions. 

Also, file a complaint with the relevant financial market authority, such as the SEC or the CFTC, and report the incident to local law enforcement.

Last but not least, you can book a consultation with Scam Brokers Reviews. We boast a team of professionals who deal with chargeback cases daily and help victims of cyber fraud retrieve their hard-earned funds. Our experts can help you get your money back.