No, binary options trading in itself is not a scam, but scammers have taken advantage of the popularity of binary options to lure in victims. This is one of the reasons why binary options have gotten a bad reputation.
Also, some binary options brokers employ morally questionable methods for attracting new clients, such as luring them in with huge welcome bonuses that come with rather complicated terms and conditions.
If you are interested in doing binary options trading, it is best to do so in a place where binary options trading is legal and regulated, and select a binary options broker that is licensed by a well-reputed license authority.
Instead of simply trusting the word of the broker, you can check with the license giver to make sure the broker is actually licensed.
Contracts for Difference (CFD)
In parts of the world where binary options are illegal or where a good regulative framework is lacking, Contracts for Difference (CFD) can be a suitable alternative. (Please note that Contracts for Difference are not permitted in certain places, including the United States.)
Just like binary options, contracts for difference will allow you to gain exposure to an asset without owning that asset, and you can also speculate on things such as the movements of an index.
Sometimes people claim to have been scammed out of their money when they simply did not take the time to learn what a binary option is and how it works. Just like you can lose your money trading company shares, forex or commodities, you can lose your money trading binary options.
Regrettably, it is fairly common to see people being upset over terms and conditions that were clearly stated on the brokers website and in the trading app. A subset of this are the people who cry SCAM after using leverage without understanding what trading on credit entails.
- Don´t do deals your don´t understand.
- Don´t be too lazy to do your homework before you risk your hard-earned cash.
- Before you make any real-money deposit, sign up for a free demo account and use the play-money to learn more about how things work at the trading platform.
- Understand that you are trading against the broker, not against the market. Only do deals where the broker is offering you sufficiently good terms.
- If you want to expand and use another type of option, speculate on a new market, etcetera, learn about it first. Diving in with real money and hardly any knowledge is an expensive way of learning. There is usually a finely calibrated risk-reward ratio at play, so that exotic option that offers such excellent pay will also be much less likely to end in the money.
- Every time you trade, you are risking your money. Binary options trading is not risk free. Do not risk money you can not afford to lose, no matter how much of a ”sure thing” thing you believe this to be.
Some binary option brokers have run really aggressive promotional campaigns featuring massive welcome bonuses.
Before you accept any bonus (welcome bonus, deposit bonus, etc), make sure you read the fine print. Binary option bonuses tend to come with terms and conditions to prevent people from simply signing up and quickly withdrawing the bonus money. Some brokers have fairly reasonable T&C:s, while others will make your jump through nearly impossible hoops and deny any withdrawal request until you have fulfilled the bonus requirements.
The bonus requirement is typically a trading requirement, which means that you need to risk your money over and over again to fulfill the requirement. Trying to be smart by making low-risk trades or hedging is usually not permitted.
Important: If you make a deposit and accept a welcome bonus, it is very common for the terms and conditions of the bonus to stipulate that no withdrawals can be made until you have fulfilled the bonus requirements in full. This means that you can not take out your deposited money. It is not just the bonus money that is locked inside your account – all the money is locked; including deposits and profits.
If you do not want the welcome bonus, contact the customer service b e f o r e you make your first deposit and make sure you get a go-ahead from them before you deposit any money into your trading account. This is much easier than trying to get them to remove the bonus afterwards. Also, if you have already made at least one trade after receiving bonus money, few if any brokers will agree to remove the bonus.
We also want to warn you against signing up with a binary option broker simply because they are waving a big welcome package in front of you. In the long run, your satisfaction with a broker – and with binary options trading – will depend on completely other factors than the exact size of the welcome bonus. Is this broker honest, reputable and licensed? Do you like the trading platform? What terms and conditions apply to the binary option payouts? What costs are involved that will eat parts of your profits? Is the customer service good? These are just a few questions that are more important than ”how big is the welcome bonus”? It should also be noted that some brokers offer huge welcome bonuses because they know they don´t have much else to offer compared to better brokers.
Beware of the independent scams
Even if you are using a 100% reputable broker, you must be vigilant against the multitude of independent scammers trying to lure binary option traders in. They come in many forms, and the easiest way to stay clear of them is to do your own trading.
Here are a few examples of things to be aware of:
- People trying to sell you the most wonderful trading strategy for binary options. You will get super rich so quick, I promise, and it is only $499.99 on sale if you order within the next 14 minutes!
- People who offer to trade for you, if you hand over your log-in information to them.
- Sketchy transaction methods. If a binary option broker does not accept any of the transaction methods you are comfortable with, move on to another broker.