How To Avoid A Binary Options Scam?
Is it a secret that the Binary Options industry is pestered by scammers? I don’t think so. Even if you are new to this, you’ve probably heard about some guy wanting to share an “extremely profitable” way of making money or a special trading bot that will make you thousands per day – on autopilot of course – or a guy who wants you to follow his signals that will supposedly make you rich. And if you’re old to this… oh, then you surely know all about the brokers’ tactics to get a hold of your money and never let it go: here, take this highly “experienced” Account Manager and let him bust (*ahem* I mean “trade”) your account. When you are getting close to zero balance, don’t worry, we will give you a huge bonus so you can trade some more… you’ll get your money out by the year 2057, but they’ll leave out that part. Unfortunately, scam is present in this industry and we cannot eradicate it completely, but we can find ways to decrease the risks considerably.
A History of Scam – Where It All Began
Two hundred thousand years ago, two Homo Sapiens talking:
“Give me a piece of your meat now and I will share my mammoth with you. I have it in a cave nearby but I am too hungry to get there.”
“Ok, I will trust you. Have a piece”
*nom, nom, nom*
“Now let’s go get that mammoth”
“Oh, you actually believed me? What a fool. There’s no mammoth.”
That’s how scam was invented (don’t take my word for it, I wasn’t there) and believe it or not, the structure remains the same to this day: a wild promise is made and something is asked in return. The scammed party foolishly believes the promise and agrees to pay the price. The finality is always the same: the promise is not honored. Unfortunately people still believe too easily that a mammoth is stored in the next cave or that someone will share their money making secret in exchange of a measly sum of money or even for free.
Now let’s take a look at modern times: ever since Binary Options were introduced to the large public in 2008, scammers made wild promises and people believed them. The reason why so many scammers roam this industry is because it’s easy for regular people to get into Binary Options (you can open an account in minutes), so there are a lot of traders (aka prey). Whenever there’s lots of prey, predators will flock to the scene, trying to get a piece of the action. Whether you are a gambler, a trader or someone who never had anything to do with the financial industry, you can get into Binary Options with ease but there’s one thing everybody needs: a broker. This is where it all begins: they will offer you an account manager, a bonus, insured trades, maybe signals, maybe this, maybe that. If you are dealing with a scam broker, accepting anything from them is a really bad idea. Here’s why:
Beware Of Account Managers and Managed Accounts
So as I said, once you register with a broker, you will be offered an account manager. He will try to give you all kind of stuff in exchange for a bigger deposit from your part. He will give you the classic speech “If you deposit more you can make more and you can manage risk better”. He will probably throw in a bigger bonus incentive too, but everything you are offered comes with strings attached: a bonus requires a turnover (you need to reach a certain trading volume until you can withdraw your money) so your money will be tied to that brokerage. He will say he is a trader for 20 years, tons of experience, tons of money made, tons of happy clients and that he will teach you how to trade. Heck he will trade for you, forget about teaching anything…
My basic advice to all of this is: don’t accept a high bonus (or at least go for one of our Recommended Brokers because their bonus conditions are fair), never deposit more than you want because your account manager promised you something and more importantly – never invest more than you can afford to lose. I’ve heard of people loaning money just to deposit more so they could get the VIP package and then the account manager traded the account into the ground. Don’t be that guy! And don’t allow your account manager to trade for you. If you don’t know how to trade, don’t trade. Learn first, trade after and never forget that your account manager works for the broker, not for you. Most of the times when you win the broker loses so why would the employee want to harm his employer?
Even if you’ve managed to escape the trap of the market-master-guru account manager who offers you bonuses and sells you dreams, you’re not out of the woods yet because sometimes that account manager will offer you another thing: a managed account. Yes, a twist of words and sometimes a way to twist your arm and make you do what they want. They will say something the lines of: “you sit back and relax while we trade your account, make lots of money and we will give you a monthly return”. In this case you don’t have to know anything about trading because they will not only give you trading advice, but place all the trades. It’s just like the Blackjack dilemma: you don’t know how to play so you let the dealer play for you… will he have your best interest in mind? Even if that means directly losing money from the casino’s (his employer) pocket? Hmm, let me think about it: NO! If you want to find out more reasons why going managed is not a healthy option for your money, read: Risks of Managed Binary Options Accounts Revealed.
Let’s dwell a bit longer into the realm of managed accounts and talk about 3rd party managed accounts. This one is the most terrifying in my opinion because this 3rd party can very well be a scam. A brokerage has a reputation to maintain (well, some of them do) so they will not just wipe your account in a week and then shrug their shoulders. Now when it comes to 3rd parties, you have to be extra careful who you are dealing with; they don’t have to be regulated, they don’t have to have a physical address, they don’t have to give you their real name, so double and triple check whether you can trust or not that service. Most importantly, never use wire transfers if you are dealing with an unverified service. A credit card can be charged back (sometimes) but a wire doesn’t. Be extra careful when dealing with 3rd party managed accounts.
The Signal Provider / AutoTraders Shuffle
When binary options as we know them today were born, along came a great evil: the scam of the signal providers, autotraders and all sorts of trading bots. These guys will tell you to trust them because they will give you super-extremely-magnificently accurate trading signals or even software that trades for you and does all the hard work. Sounds too good to be true? Maybe because it’s not. Sure, among these service providers and software sellers you will find a few good guys, but you have to choose wisely who you trust because most of them promise you the world, saying they have found a secret formula to trade and make millions, they have a mammoth in the next cave… you get the picture. I ask you one question: why would they sell a money making machine? Out of the kindness of their heart (yea, sure) or because they need money? But they have the Holy Grail of trading – why would they need money? The reason is much simpler than that: what they are selling is not as good as they want you to believe, so simply don’t buy it. We’ve covered this subject in more detail in the articles Signal Service Providers – Know How to Avoid Scams and Resentments and Binary Options Robots – Is it a Scam or Should I Choose the Robot. Read them and avoid getting scammed.
Got Regulation?
You want to decrease the risk of Scam – you have to deal with regulated brokers. Trading with a broker that is not regulated by a financial authority is like going outside when it’s cloudy without an umbrella. Does it mean it will rain? Nope, but if it rains you will surely get wet. Your broker’s regulation is your umbrella; it protects you against scam but hey, if the summer rain turns into a storm, that umbrella won’t do you much good anyway. In other words, regulation decreases the risk of scam but is not 100% bulletproof. A good trader is an informed trader and that’s why I urge you to read this complex article that covers many of the questions you might have regarding regulation: Binary Options Regulation – Everything you need to know.
I am not saying that you won’t run into any problems if dealing with a regulated broker, but the risk is decreased and besides, if something happens, at least you know who you are dealing with and you have the option to file a complaint with the regulator. If your broker is not regulated, you don’t know their address and not even their company name, who are you going to complain to? Who are you going to sue? To avoid scam, you need to know who you are dealing with. It’s common sense. If they don’t give information about themselves, why would you give them money? However, the lack of transparency is likely to come to an end because recently we’ve seen a lot more activity coming from the regulator’s part: in the past CySEC was more like a rubber stamp but lately it starts to be more active, issuing warnings and even fines. Moreover, other regulators step in and nowadays we are seeing more than one authority working to make Binary Options safe: CFTC and American authorities have radically improved the safety of US citizens with strong warnings, FCA UK has already started dealing with binary options regulation and I believe we’ll see even stronger UK rules in the future. Local agencies (France, Italy, Germany, and more) have already started working on local rules and regulation. Bottom line is: the authorities recognize the problem and are working on fixing it. Things can only get better from now on.
Don’t Give Trust Lightly
Before investing in a signal provider, bot/autotrader or depositing with a broker, it’s wise to read reviews online. But be careful because not all websites have the reader’s best interest in mind. I don’t want to point fingers or anything but when you see stellar reviews of brokers that are known scams, you have to wonder if that review website doesn’t have a hidden agenda. So my advice is to read more than one review and if one website says broker X is the best while others give bad reviews, just beware and turn to real traders for advice. And if you don’t know where to turn to real traders, I have the perfect place: our Forum. Open a thread if one doesn’t already exist and simply ask the crowd.
Totally Eradicating Scam – Is It Possible?
As much as I would like to see a binary options world without any type of scam, I know that’s not possible. As long as money will be involved, scammers will try to profit from gullible traders. Tune in to our monthly binary options scam watch for evidence. Question everything, don’t accept free lunches or things that sound too good to be true. Learn to decrease the risk of being scammed because trading the market is tough enough on its own. I don’t like losing money trading but I prefer it to being scammed; at least I lost it because of me not because of a scam broker or a black box trading software. On the bright side, comparing things now with how they were 2 or 3 years ago, I can tell you that we’ve seen a decrease in broker scam and also some very reliable brokers have risen. Regulatory authorities are really starting to make their presence known and this of course drives the scammers away from the industry. The biggest problem in my opinion remains the fake autotraders, scam signal sellers and shady unregulated brokers with funny names which should be avoided at all costs. We’re expecting a brighter future and you can be a part of it, especially if you stop feeding money to the scammers ;)