Binary trading got extremely popular among traders lately. Numerous brokers appeared out of nowhere and advertising is aggressive. A retail trader is defined as someone that trades a financial product, without being a professional. Most of retail traders are newbies.
They come to this industry with great hopes and expectations, only to find out that trading profitable is not that simple. Not that is impossible, but not simple. Trading should be viewed like running a business of your own. If you treat trading as a hobby, there’s no way you’ll make it in the long run.
How to Avoid Binary Options Scams
Unfortunately for the retail traders, the binary options industry is gripped with scammers, starting with the brokers and ending with individual traders. In other words, as a trader, you’re on your own. There is little trust in the industry and if you still want to be involved, you must do the job filtering the information in front of view. There are a few things traders can do to avoid binary options scams. One would be to find out as much information about the binary options broker.
When trading binary options, and not only, you trust your broker with your money. If you do that, make sure the broker uses the funds appropriately. An inappropriate behavior would be if the broker uses the new funds it receives to pay withdrawals. This is forbidden in the financial world.
There’s a name for it: Ponzi scheme. Unfortunately, many brokers use this approach. They spend aggressively on advertising to attract as many new depositors. Because the winning rate is low, few people end up asking for a withdrawal. Those that do, would want to make sure their money is still with the broker.
Some famous names in the industry were involved in Ponzi schemes. There’s even a recent movie about how Bernie Madoff tricked investors. A regulated broker can’t do that. Hence, the first priority before starting trading with a broker is to find out information about it. Regulation is a must.
Trade with Regulated Binary Brokers
As mentioned earlier, a regulated broker save you the trouble of knowing you can withdraw your funds. Statistically, this is the most important feature retail traders look in a broker.
How to do that? Look for the broker’s license number and authority that regulates it. If there’s no such information on the website, probably the broker is not regulated. Hence, avoid sending your money to it. But brokers are smart. Sometimes they place a license number on the website, but the license doesn’t exist. Or, it was suspended.
As such, the way to go is to simply address the financial authority that regulates the broker. Send an email and ask more details about the broker. Even better, give a phone call and inquire the validity of the information. You’ll be surprised how much information exists out there. With only a bit of an effort, traders can find crucial information about a binary options broker. Latest binary scams do not refer only to the broker, though. Fabricated reviews appear on financial forums.
Don’t Base Your Decision on What Others Say
Most reviews are fake. At least, the good ones. If you end up reading a positive review, it should not be isolated in that forum. Look for multiple sources to point out about the practices of that broker. Again, this should be the second step in your process of identifying a good broker and avoid binary scams.
In this industry, reviews do not work like on Amazon, for example. Brokers know traders will look at reviews and hire people simply to comment on forums or on dedicated websites. Moreover, they make their own separate reviews websites and promote the brokers and businesses they have an interest in. Again, being cautious will save you a lot of trouble when trading binary options.
Lately, many people offer “signal” services for the binary options. Think of it for a change: why would you trust someone to trade your account? What is the outcome you’re looking for? In this case, you look for a profit. Get a new job, or a raise, and you’ll end up with more money. If you want to trade or to become a trader, at least make an effort and do it properly. Keep in mind that trading is not for everyone. It doesn’t suit everybody. Make sure you have the time, capital, and the right attitude before trading financial markets.
Bad Practices from Binary Options Brokers
Even binary options regulations cannot stop brokers getting involved in bad practices. That means, using unethical methods to screw traders.
The Trading Platform
Most of the binary options brokers, if not all of them, offer a web-based trading platform. While this is not a bad thing, Internet conditions differ from trader to trader and from a part of the world to another. When trading an option, the striking price (the entry price) matters as much as the expiration date.
Sometimes, these trading platforms “freeze” all of a sudden. Despite you had a great setup, you couldn’t execute the trade. This is a technique that was popular among Forex brokers some years ago.
Nowadays, with the new ECN (Electronic Communications Network) and STP (Straight Through Processing) technologies, brokers can’t re-quote prices as they used to do. In other words, back in those days, if a trader wanted to buy or sell a currency pair at market, this wasn’t possible. The broker argued that the market changed to fast and will requote your entry. Until finally the trade gets executed, the market moved and the entry price is not relevant anymore.
In binary options trading, this makes the difference between a profitable option and one that expires out of the money. When the trading platform of a binary options broker “freezes” constantly, you’ll know the broker tries every trick in the book to play the game in such a way you’ll lose your account.
The Products Offered
Another way to lean the chances to their favor comes from the financial products the binary options brokers offer. You cannot trade any currency pair you want, or any product you want. Only the ones offered. Binary options brokers favor currency pairs or financial products that often change direction and trend less. EURUSD is one currency pair like this: it rarely trends, not even on the bigger time frames, and, during the trading week, makes many fake moves.
However, the EURUSD is not that bad a currency pair to trade binary options with. In fact, it is the most popular option. GBPCHF, AUDNZD, EURAUD or other similar crosses will end up in the offer. While on the Forex market, the traders can choose any currency pair from the list, on the binary options market the possibilities are limited.
The Expiration Dates Offered
Even more important, the expiration date possibilities tell you much about the broker. Most of the time, the binary options broker offers only a few choices for the expiration date. The short-term expiration dates will always be there. Chances to be constant profitable while trading them are close to zero. If you think otherwise, you’re only fooling yourself. Or, simply, you got lucky so far.
Trading has nothing to do with luck. I mean, a bit of luck never hurts, but, in the long run, trading success has nothing to do with it. Instead, successful trading has much to do with discipline, patience, and doing your homework. More importantly, knowing what the forces behind the market are and how to build realistic expectations.
If you come to the trading game with hopes of making a million dollars out of a one thousand dollars account, then you’re in the wrong place and in the wrong business. Binary options trading is particularly more difficult than trading other markets. And, even more importantly, less regulated. It gives a place for crooks and fake brokers to take advantage of honest traders without someone to be able to do something about it.
When you trade, no matter the product, be in control. Don’t let some account manager or a “designated” person to trade your account or money. Even if the person comes from the broker. You’ll end up seeing risky trades being taken, with aggressive trading, and in the end all you’ll get is a “sorry”. Only because markets are open doesn’t mean you have to trade.
Having no position, is a position. When you are the one that decides the moment to trade, the amount, the risk, etc., that moment you’re in control. In trading, the key thing is to control as much as possible from it. Starting with the risk, execution, and so on. Few traders understand that trading is not a video game. These are real people with real money that buy or sell for various reasons.
Not everyone buys or sells to make a profit. Some do that because they have to. For example, a company in the United States wants to buy a huge European corporation. It will have to pay for it with Euros. For that, the US company will sell dollars to buy Euros. This will end up moving the market, with no one having an intention to make a profit.
To some up, do some research before trusting your money with a binary options broker. In fact, this is valid for any broker, no matter the industry. Compare it with depositing your money with a bank. You won’t want to make a deposit with a bank that is about to go bankrupt, right? Try to find as much information as possible about the regulation. Moreover, look for info related to the trading process. If possible, trade on a demo account a bit.
Ideally, check if the broker allows you to build your own option. Back in time, this was possible with good brokers. It means you can choose your product (any product), the expiration date (from multiple possibilities), and so on.
But what matters the most, is that even doing all the above, and assuming you found the right broker to trade with, it all depends on you. If you have a day job, and you can spare only a few hours or less a day doing your analysis, then trading is a gamble.
If you’re an impatient person and see the benefits in trading short and very short-term expiration dates, it won’t take much until you’ll change your mind.
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