The U.S. Financial Industry Regulatory Authority (FINRA) issued a new alert on Monday warning investors about trading in binary options, which it describes as “all-or-nothing” propositions.
“When a binary option expires, it either makes a pre-specified amount of money, or nothing at all, in which case the investor loses the entire investment,” the FINRA alert says.
Moreover, the regulator notes that binary options are sometimes used in foreign-based fraudulent schemes. And it reports that calls to its senior helpline suggest investors should be particularly wary of non-U.S. companies that offer binary options trading.
“These include trading applications with names that often imply an easy path to riches and demo accounts that allow users to try their hand at binary options trading without risking personal assets,” the FINRA alert says. “Such accounts can serve as bait to lure investors into sending money to fund a ‘real’ trading account, or open the door to identity theft, by requesting an array of personal information.”
“Calls to the FINRA Securities Helpline for Seniors suggest that scams involving binary options and their trading platforms are alive and well,” says Gerri Walsh, FINRA’s senior vice president for investor education, in a statement. “Callers describe situations in which purported binary options trading firms don’t deposit an investor’s funds into the investor’s account, deny requests to return funds, or require a fee be paid in order to receive a return of their investment assets. In at least one situation, a fraudster posing as a regulator accused the investor of engaging in illegal binary options trading and demanded payment of a fictitious fine.”
Thus, FINRA reminds investors to not deal with firms unless they can verify the registration status of the trading platform, products, firms and financial professionals.
Canadian regulators have also issued their own similar warnings about binary options and offshore platforms purporting to offer trading in these vehicles in the past.