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Binary Options and Fraud

Binary options differ from conventional options in key aspects and therefore, open the door for more widespread fraud.  Binary options are a product in which the payout depends on the outcome of a yes/no proposition that is agreed upon when purchased.  The yes/no proposition relates to a particular asset being a certain price at a set time.  Binary options are referred to as an “all-or-nothing options” meaning that the customer receives either all of the promised return or none of it.  A binary option does not allow the buyer to sell or purchase the underlying asset.   

Most binary options are purchased online through overseas internet-based trading platforms, which increase the risk of fraud for customers due to less transparency.  There are three prominent fraudulent schemes that have developed as binary option trading has increased.  The first scheme involves a trading platform’s refusal to credit customer accounts or reimburse funds.  This occurs when a customer attempts to withdraw their original deposit or the money that has been promised and they are unable to do so because the trading platform cancels the customers’ withdrawal requests, refuses to credit the customer account or ignores the customer’s calls and emails.  The second scheme is identity theft.  Identity theft can easily occur when trading platforms gather credit card and driver’s license information.  The third scheme concerns the manipulation of trading software in order to prolong the expiration date of the binary option.  The trading platform keeps moving the expiration date so that the customer never can win.

In order to prevent all types of binary option fraud, customers should always check online with the SEC and FINRA to see if the broker-dealer and/or trading platform are registered as well as to see if the binary option sale is registered or exempted with the SEC.  If you have any questions about binary options contact the Indiana Secretary of State, Securities Division at (317) 232-6681.

To see full SEC Binary Option Investor Alert: Click Here