I have personally had a bad experience with Binary Options that leads me to believe that this form of “investing” is actually fraud.
Binary option “trading” is where you predict the movement of a currency, stock, or index, and if you correctly predict the movement after a set time, you profit. However if you are wrong, you lose 100% of your “investment”. This is the difference with normal options where you purchase a contract from other traders, and you get the option to buy or sell a stock or commodity at a given price at the expiry of the contract’s term. The amount you profit (or loose) depends on the amount the contracted commodity moves up or down. Binary options are binary – win or lose, set profit or 100% loss.
Normal options are bought and sold on exchanges, and you can sell out of a contract at any time – as long as there is a buyer. This is where what I believe to be a scam starts with binary options – you are buying the contracts from the company you are dealing with directly. Should you predict correctly, they pay you the profit themselves. However if you are incorrect they get 100% of your “investment”.
This seems very much like betting heads or tails with a casino. However in this case if you guess correctly, the casino only gives you back 170-180% of what you wagered, but if wrong they keep everything you put down. Over the long run you will win 80% half the time and lose everything half the time, eventually you will give everything to the casino.
This is exactly what Binary Option companies do. The returns are strongly in their favor. If a commodity is very easy to predict, they won’t offer it. If it is reasonably hard to predict they will offer poor odds (eg 170% return on a win), if it is hard to predict they will entice people with up to 185% returns.
With these sorts of returns, you need to be correct around 60% of the time just to break even. That doesn’t sound to hard right? Using market indicators a smart person can bet that right?
Well to make sure suckers are parted form the money the company provides you with a broker, who claims his job is to give you advice so you can make large profits. Now remember above where I said the company you are working with only makes money when you lose? Well why would they provide you with somebody to give you advice so that you win more than 60% of the time and hence the company itself loses money? Well I don’t think they do. After some time it felt to me the broker’s main goal was to talk you in giving them more money. They used hard selling like “oh but you are going to miss out on this great opportunity to profit and get your losses back” or they offered bonuses like contributing a matching amount if you sent them more money, but they will not allow you to withdraw this bonus money once you have lost everything you put in. This is like a casino offering you free chips if you buy some yourself – they know they will win it all back eventually.
So is the advice any good? Sometimes. The longer they can keep you on the hook adding funds the more the company can profit. So if you lose too quickly you will lose faith and no longer deal with them. However over the long term you don’t meet the 60% win ratio so your money dwindles. Once I had lost all the money I had put in and was no longer willing to add more – I stopped hearing from the broker offering me more advice. Their job was done- the well was sucked dry.
This is fraudulent as they are claiming they are acting in your interest, but why would a Binary Options company help you profit at their cost?
The worst thing I suspect the company I dealt with was doing was manipulating the results. I saw charts on their own website providing contradicting market prices for items I had entered into a position on. The chart which was indicating if I was in a winning or losing position would start trending into loss territory; whereas the general chart would show a different trend and that would give me a win. When I asked my “broker” about this he never replied.
Imagine you were playing roulette at a casino, but the casino didn’t let you see the result, you just had to take their word for it. If you were winning too much, and put your money on black 8, and it actually came in, they could easily just claim it was black 9 and take your money. Would you play this game?
Based on this very poor experience I had with this one binary options company, I can see why similar companies are exploding all around the globe. It is a better business than casinos, as casinos have to play by very strictly controlled rules, but rules that still allow them to win percentage wise and make a lot of money as long as they have patrons. However with binary options they are not so closely controlled and it allows them to act in a way I believe is fraud in many ways, and hence ensure large profits.
All while they are allowed to promote their potentially fraudulent “services” as “investing”. Way aren’t online casinos allowed to call their games “investing”? Because it isn’t.
Are all binary option companies scams? I couldn’t possibly know. Quite possibly there are some honest ones that don’t only make money when their customers lose, but from what I have read there are many who are suspect fraud. Hence I personally will be staying away from binary options from now on.
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