Binary options can be a highly profitable form of investments – if you avoid binary options scams. In our guide, we explain how to separate the trustworthy brokers from the scams, and how to find the best broker for you.
For this purpose, this guide will answer these questions:
- What kinds of binary options scams are there?
- Are all binary options brokers scams?
- How can I find a broker that is not going to scam me?
- The special case: How can U.S. traders find a trustworthy broker?
- Is there a quick and easy way to finding a trustworthy broker?
With the answers to these questions, you will be able to avoid binary options scams and find a broker that you can trust completely.
What kinds of binary options scams are there?
There mainly three ways in which a binary options broker can try to scam you. To help you avoid the risks, you have to understand them first, so let’s take a look at all possible scams one by one.
Binary options scam #1: Brokers that keep your money
The fist way in which some brokers try to scam you is by simply stealing your money. You deposit money with the broker, but when you want to withdraw it, the broker will either refuse the withdrawal based on a technicality or fail to react at all.
These types of binary options scams are rare, but they do exist. Luckily, there is an easy way to avoid them. This way is government regulation. When you have the European Union or the United States monitoring every aspect of a broker’s business, you can be sure that this broker will pay you your money back whenever you demand it.
A special case of this scenario is a broker that has to file for bankruptcy. In this case, too, all your money is likely gone when you signed up with an unregulated broker. Brokers that are regulated by the European Union or the United States, however, have to keep their customer’s money in bank accounts that are separate from their own accounts. Consequently, when a regulated broker has to file for bankruptcy, your money is protected, and you can withdraw it completely.
Government regulation is the best way for you to guarantee that you can withdraw your money at any time and avoid this type of broker scam.
Binary options scam #2: Brokers that steal your identity
When you register with a binary options broker, this broker has to make sure that they know who you are. In the process of verifying your identity, your broker necessarily has to ask you to provide pictures of personal documents such as your ID or a proof of residence. With these documents, a broker could theoretically steal your identity.
Now, some brokers have done this in the past. Luckily, these brokers are rare, and there is an easy way to avoid them. Once again, this way is government regulation. As long as you have the European Union or the United States watching over a broker, you can be absolutely sure that this broker has never stolen anybody’s identity. Otherwise, it would no longer exist.
Even if you were the first trader of which the broker steals their identity, you would have the full backing of a trustworthy, effective legal system. Still, the odds of that happening are as slim as the odds of Bank of America stealing your identity.
The one thing we have to point out at this point is that it is absolutely necessary for a broker to ask for personal documents. When you withdraw money into an account that you have never use before, the broker has to make sure that it is really you making the withdrawal and not some crook who is trying to rob you. Additionally, there are anti-money-laundering laws that require online brokers to verify the identities of their customers.
A broker asking you for personal documents is not a bad sign. Just make sure that the broker is controlled by a trustworthy government and that it has to abide by certain rules regarding what it can do with your personal information.
Binary options scam #3: Brokers that manipulate the trading platform
By manipulating their trading platforms, binary options brokers can put you in a situation where it is impossible to make money. There are three basic forms in which a broker can manipulate its trading platform to cheat you:
1. Your broker can manipulate the price you get
When your broker is telling you that an asset is currently trading at $100, you have to believe them. In the past, a small minority of brokers have used their traders’ dependency on them to offer them with wrong prices that caused them to lose trades that they would have won otherwise.
The most common form of this manipulation is the bid/ask manipulation. Brokers of conventional assets use two prices for any given asset at the same time. One price for which they are willing to buy an asset (the bid price) and one price for which they are willing to sell the same asset (the ask price). The ask price is slightly higher than the bid price, and the resulting spread is how conventional brokers make money.
For binary options brokers, this poses the question of which price to use as the basis for their calculations. Some brokers have used the price that offers the worse chance of winning the option for the trader, which is a clear way to scam you.
When you have predicted that an asset will trade over $100 when your option expires, for example, you might be able to win the trade based on the bid price, but you might lose it based on the ask price. By offering you the price that reduces your chances, your broker scams you.
Luckily, most binary options brokers have found a just, simple way to avoid this problem. They use the average price of bid and ask, which clearly defines one price for each asset.
With this one price, you always know what you are going to get. You can make clear predictions, and your broker is incapable of cheating you.
Once again, the easiest way to guarantee that you get fair prices at any time is making sure that your broker is government regulated. Both the European Union and the United States make sure that their brokers offer traders fair prices at any given time.
Some unregulated brokers try to make up for their disadvantage by using price feeds from Reuters or other trustworthy sources. While these price feeds can guarantee that you will never get a completely wrong price, they are unable to prevent the bid/ask trickery we explained earlier because these feeds necessarily contain all relevant market data and are incapable of determining whether your broker uses the right price for you.
Consequently, we recommend that you make sure to sign up with a government-regulated broker, and you will get a fair price at any time.
2. Your broker can manipulate the platform in itself
This is a rare manipulation, but it has happened. Some brokers have manipulated their trading platforms in a way that cheated their customers out of their money. For example, some brokers have programmed their platforms in a way that ends your option a few seconds early or late if this manipulation means that you would lose an option you would have won otherwise.
This type of manipulation would lose you only a few trades, but since binary options are a numbers game, these few trades might make the difference between winning and losing money by the end of the month.
Once again, the simplest way to avoid these manipulations is to trade with a government-regulated broker. While manipulations to a broker’s platform are tough to notice, some traders will notice them and inform the legal authorities. Some unregulated brokers simply work in third-world countries without a functioning legal system. Any broker that is regulated by the European Union or the United States, on the other hand, works within a system that would have closed this broker down long ago if there were any manipulations to its platform.
3. A broker can charge you hidden fees
Some brokers have charged hidden fees to their customers in the past. When traders wanted to withdraw their money, for example, there was suddenly a fee on withdrawals that was never mentioned before.
In this case, too, the easiest was to avoid a scam is to register with a broker that is regulated by the European Union or the United States. These governments make sure that all brokers operating under their control offer traders a fair trading environment and lay out all the fees before you sign up with them
Are all binary options scams?
As you can see from our analysis, there are quite a few ways in which a broker can scam you, but not all brokers are scams. In fact, most brokers offer legitimate businesses. Government regulation, free-market competition, and sites like this one that test brokers have weeded out many of the untrustworthy brokers, and those brokers that remain are generally trustworthy.
The truth is that binary options offer a business that can work for your broker and you. Just like with regular assets such as stocks, binary options, too, are a form of investing where some traders make money, other traders lose money, and the broker gets a small cut.
This system is a genius way to make money, both for traders that know how to trade well and for brokers. Consequently, there is no real need for a broker to scam you. Brokers can make much more money by offering you an honest service that gets them the small cut of every transaction that they need than by scamming you.
Binary options work just like stocks. You probably know some people who have lost money with stocks and you know some people who have made money. For binary options to work, there has to be the exact same relationship of winners and losers.
The overwhelming majority of binary options brokers offers you the perfect opportunity to become one of the traders that win money. There is no reason to distrust binary options in general; you only have to be a little careful about which brokers you decide to trade with.
How can I find a broker that is not trying to scam me?
As we have pointed out earlier, there is an easy way to avoid binary options scams. This way is government regulation. With government regulation, you have a free, trustworthy partner at your side that protects your best interest against all the scams that a broker could pull on you. In this system, you are well-protected and can find plenty of binary options brokers that are not trying to scam you.
Make sure that your broker is regulated by the European Union or the United States, and you are on the safe side. Any broker that has the approval of either government is generally as trustworthy as a regular bank and definitely not a scam.
That does, of course, not mean that you will make money automatically with these brokers. It does mean, though, that these brokers provide an honest service, that there are no hidden surprises, and that you have a real chance of making money with them. This is the environment every binary options trader needs.
The special case: How can U.S. traders find a trustworthy broker?
When it comes to finding a trustworthy binary options broker, U.S. traders face a special legal situation. The regulative authority for the U.S. options market, the CFTC, requires that every broker accepts their regulation in order to be allowed to offer their service to customers inside the United States.
Because of this law, many trustworthy brokers are outside of the reach of U.S. traders, simply because they are regulated by the European Union and not the CFTC. These EU-regulated brokers have to abide by U.S. laws, too, if they want to keep the regulated status, which is why they refuse to accept U.S. traders as their customers.
This dilemma creates a dangerous threat: all the trustworthy, EU-regulated brokers refuse to accept U.S. traders, which leaves only the untrustworthy, unregulated brokers that are willing to ignore existing laws and accept U.S. traders anyway. As a result, many U.S. traders have been swept into the arms of untrustworthy brokers.
Luckily, there is a simple way to avoid this dilemma for U.S. traders. This way is Nadex. Nadex is the only binary options broker that is based in the United States, the only broker that accepts regulation by the CFTC, and the only broker that is legally allowed to offer its services to U.S. traders. Luckily, Nadex is one of the best binary options brokers in the world.
The CFTC’s regulation has turned Nadex into a broker that is fundamentally different from all other binary options brokers in the world. You get a guaranteed average payout of at least 91 percent, which is much higher than what you can get with other brokers, unmatched security, and a more trader-friendly basic structure.
To help you understand which binary options broker illegally offer their services to U.S. traders, the CFTC has published a RED list, which is short for Registration Deficient List. On this list, the CFTC names all binary options brokers that offer their services to U.S. traders but refuse CFTC legislation. The CFTC updates the RED list regularly, and the list is available online.
If you are a trader from the United States and are unsure whether you can trust a broker that is willing to accept you as a customer, we suggest you check the CFTC’s RED list and see if the broker is mentioned there. If so, stay away from it. If not, you can probably trust it.
The quick and easy way to trustworthy brokers
If you want to avoid having to crawl the web yourself, we can help you. We have tested all major binary options brokers and listed the best of them in our top list. If you are from any place other than the United States, we recommend you take a look at our top list and pick the broker that you like best.
On this list, you can find a few true gems. IQ Option, for example, offers traders a deposit-free demo, with which you can start trading with play money for free. You can develop your skills, find your strategy, and when you can guarantee that you will turn a profit by the end of the month, you can switch to real money trading with a regulated broker for a minimum deposit of only $10. With this system, everybody can find their way to binary options success without risking a single Cent.
If you are a trader from the United States, you can shorten the process and sign up with Nadex right away. Nadex, too, offers a deposit-free demo like IQ Option and provides the perfect service for you in all aspects.
The easiest way to avoid binary options scams is to make sure your broker is regulated by the European Union, most often in the form of the CySEC, or the United States, in the form of the CFTC. If you are from the United States, you have to make sure that your broker is regulated by the CFTC or it might not be allowed to offer you binary options at all.