It is always unfortunate that people have to be concerned about scams.
Binary options are no different, and despite the great deal of reputable brokers and managed account providers, scammers have taken the opportunity to invade the market and provide sketchy services using dishonest tactics.
Many stock market beginners will try to move into options after stocks, and find themselves falling prey to these scams. In this quick guide, we will go through a number of known binary option scams, how to spot them and how to choose wisely.
Typical Binary Option Scams
One of the most prolific scams in the industry are those which involve free “revolutionary” software that is bound to make you endless riches. The usual script is that this software has been developed by either an experienced coder or a successful trader.
What does this generous person expect in return for sharing their code? Your success, they claim, is all that they need.
In reality however, this product is run by a company affiliated with a broker. The moment that you take their bait, they require you to sign up with a broker and invest your money.
Then, once you begin trading to capture your “millions”, the software loses everything and the broker and the software provider are sitting happy.
Although there is trading software that can earn you respectable returns over a long period of time, there is no magic program that has ever discovered. In fact, as the broker does not want to pay the client out in large fees over the long term, their software is tweaked to underperform.
Another less examined binary option scam is that of managed account and signal providers who are usually in cahoots with the broker. Because managed accounts usually require a large investment in order to use their services, there remains a great opportunity to take a lot of money.
What usually happens is that the broker usually has a lock in or “vesting” period before which the client can withdraw their gains. The managed account seems to have a suspiciously strong investment returns.
The client is quite eager to withdraw his winnings and just before the end of the vesting period, they lose everything. The client is left with nothing and the broker and provider walk away with all the winnings.
Spotting a Binary Options Scam
Spotting a scam of the software variety is usually quite easy (although they have become quite convincing). They are usually a video that starts automatically with a timer below the screen. They are requesting you to snatch up one of their last remaining slots for being a “beta tester”.
They also have many client testimonials screenshots from Skype, text, and emails. These are all, no doubt fake and look very similar to previous scams. Once you hand over your email, you are taken to a member’s area where they refer you to the broker.
There are similar traits when one is looking into a managed account providers. In this case, there are similar client testimonials and doctored performance reports. They would usually require you to work with only a specific broker which they know.
Avoiding a Binary Options Scam
There are a number of ways in which an astute trader can avoid Binary Option scams.When it comes to choosing your broker, trading robot or managed account provider, you have to take a great deal of care and do the right due diligence.
This includes asking proper questions and knowing what to look for. When it comes to binary option brokers, it is usually a good idea to get in touch with the broker on the phone and ask questions such as segregated accounts, terms of trades and regulatory oversight. If the broker is unresponsive at this early stage, you can be certain that it won’t improve once they have your money.
When speaking to a managed account provider, you must make certain that the provider is aware of your risk limits and investment goals. Ask them more information on their investment strategy and do some research on the strategy yourself.
Most importantly, take a look at external reviews on other sites that are able to provide independent and impartial advice. Many of these sites are forums and are hence comprised of a number of traders just like yourself. One is pretty much guaranteed that if a broker, robot or managed account provider has taken someone else for a ride then they would have written about this on a forum or the like.
Conclusion
Trading binary options can be a great opportunity for you to make money and be independent. The unfortunate rap that the industry has taken over the past few years is as a result of the irresponsible participants in the market.
They have crowded out legitimate opportunities for traders to find the ideal broker or managed account service.
However, as with making the best trades themselves, due diligence is required on the part of the prospective investor to find the best solution for them. As one can make a bad investment in a trade, so can this occur with the wrong broker or managed account service.
Generally, good reviews and reputations do spread and if one takes the time, the golden nuggets of opportunity can indeed be found.
