Binary options are very high risk, even for experienced investors.
Also called 'all-or-nothing', 'fixed return options' or 'digital options', binary options enable you to make (or lose) money by predicting the short term movements in the price of a share, commodity, currency or index.
Usually, the timeframes are short and you don’t have long to make your call – in some cases less than a minute. For example, you might put money on your guess that a share will trade above its current price in the next hour. If you guess correctly you could ‘win’ a fixed amount of money. If you guess incorrectly you would lose the money you invested.
Most binary options providers operate through an online platform. You have to make a minimum deposit to set up an account before you can start trading. There’s usually also a minimum amount you need to place on a trade.
Once you’ve placed a trade, in most cases your money is locked in until the option expires. If you decide you’d like to stop trading, you should receive the balance of your account back. This is the initial sum you invested, plus or minus any wins or losses. Make sure you confirm this before paying your deposit.
Real-life scam stories
Diana recently lost around US$5,000 investing in binary options. She clicked an ad on a Yahoo! news article and watched slick videos about how she could ‘make easy money from home’.
Making money from investing in binary options isn’t as simple as it looks
Binary options may promise to make you money quickly, but like gambling, you could lose all of the money you’ve invested. Most online platforms make binary trading look easy by promoting a simple three-step process – online tutorials, educational materials and pop-up chat boxes. Don’t be fooled. Guessing the short-term movements of a share price, currency, index or commodity is extremely difficult, even for professionals. It’s possible to lose a lot of money trading in this way.
If it seems to good to be true,it most likely is
Options offering high payouts (up to 500%) are likely to be structured in a way that makes the chances of winning quite low.
Most foreign traders are unregulated
This means there’s little oversight and there’s a higher risk the provider may default on its payments or the investment could be a scam. Some trading platforms have refused to credit customer accounts or reimburse accounts after accepting money.
There's a higher chance you could become a victim of fraud
Online platforms may not be regulated, which makes fraudulent behaviour much easier. We’ve been advised of platforms manipulating software so the provider doesn’t have to pay out. Examples include changing the duration of the trade so it generates a loss or cancelling the trade altogether.
Another example of fraud is identity theft. This is where online platforms use or share the customer information they collect, without the customer’s permission.