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August 24, 2022

The Risky Business of Binary Options

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If it sounds too good to be “two”... it's probably a binary option. The conventional adage applies to many scenarios, but binary options, a dodgy investment mechanism that lures unwitting consumers into risky wagers, may be the most instructive example of “buyer beware” wisdom to emerge in recent years.

How do binary options work?

Binary options are a risky, multibillion-dollar market filled with countless fraudulent actors that are in violation of investment industry regulations. Essentially, binary options fraudsters lure victims into investing money by making them believe they can hit a jackpot that has a very slim chance of ever actually being obtained. They are so predatory that in some countries, binary options are highly regulated or even outright banned, labeled as a form of gambling.

What is a binary option?

A form of fixed-odds betting, a binary option is a type of options contract in which the payout depends entirely on the outcome of a yes/no proposition. Unlike other types of options, a binary option does not give the holder the right to purchase or sell the underlying asset. Once the binary option expires, the holder will receive a predetermined amount or nothing at all — commonly referred to as “all-or-nothing options.”

Binary options trading is a predatory practice that aims to take advantage of unsuspecting people all over the world looking to make investments but instead involves them in gambling with very poor odds. When victims decide that they're ready to walk away, the companies make it extremely difficult, if not impossible, to withdraw their money.

How binary options proliferate

Most of the binary options market operates through digital trading platforms that don’t comply with U.S. regulatory requirements and are likely engaged in illegal activity. Binary options brokers are famous for the predatory practices used on new or prospective investors, essentially acting as bookies while they rely on the very likely chance that their "clients" make the wrong choices and lose money.

Regulations and downtrending

At the height of its popularity, the binary options industry was highly unregulated; consumer complaints and a trail of victims have led to regulation and action against dishonest brokers. In fact, the grievances raised to regulators over these schemes have become so significant in recent years that various parliaments and legislatures have moved to ban binary options entirely.

Beyond the legislative realm, law enforcement agencies in the US, Israel, and across Europe have all pursued action against those found responsible for operating illegal and dishonest binary options operations. Unfortunately, many of the companies and operators behind these dishonest operations have not been fully deterred, and new brokerages and platforms remain a threat to unwitting consumers. Increased online monitoring can catch these companies and help reduce the number of people who fall victim as well as protect payments providers from risk exposure.

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