A binary option is a type of all-or-nothing investment contract, similar to placing a bet. Like the flip of a coin, there are only two possible outcomes: heads you win or tails you lose.
When an investor purchases a binary option contract, the investor predicts the value of an underlying asset (such as a currency or stock) at a predetermined time or date in the future. If the investor correctly predicts the asset price at the end of the contract, which can be just a matter of minutes, the investor receives the payout agreed upon in the contract. If the investor is incorrect, there is no payout and the investor loses the amount invested in the binary option.
Much of the binary option market operates through internet-based trading platforms. These platforms often are not compliant with U.S. regulatory requirements.
In recent years, the number of unregistered platforms offering binary options has surged, resulting in an escalation of complaints to securities regulators. Complaints include:
Offering binary options contracts through a website is attractive to scammers because they can reach potential investors while masking their true identities and locations. They will use a number of tactics to get you to invest.
Be alert for these warning signs:
In binary options schemes, it is common for scammers to target the investor a second time by claiming to be affiliated with a government agency. For a fee, they will offer to help the investor recover money previously lost in the binary options scam. This is called a “reload” – and it is just another scam.
Offering investment services or products, whether online or in-person, is a regulated activity overseen by securities regulators.
In the United States, some binary options list on regulated exchanges or trade on a designated contract market and are subject to regulatory oversight.
Before making an investment decision, investors should check all of the following:
