As you probably already know…
One of the biggest reasons I chose to create DatoJimmyWong.com is because it allows me to leverage my position as a highly respected authority figure in the fascinating world of finance to educate the public on what constitutes legitimate investing versus thinly veiled scams and ploys designed to separate you from your hard-earned money.
And that is why we have been launching an active “crusade” on forging and creating scam-awareness in our bid to protect the innocent, albeit often ignorant seeker of wealth.
Of late, we have been receiving a lot of queries and feedback (mostly negative) on the topic of Binary Options, and I felt it necessary to publish this article to prevent more people from falling victim to such social evil.
If you’re not familiar with Binary Options, here’s a quick definition from Wikipedia.
Binary options “are based on a simple ‘yes’ or ‘no’ proposition: Will an underlying asset be above a certain price at a certain time? Trades place wagers as to whether that will or will not happen. If a customer believes the price of a commodity or currency will be above a certain price at a set time, he buys the binary option. If he believes it will be below that price, he sells the option. The price of a binary is always under $100.”
Writing for Forbes, Gordon Pape called binary options websites “gambling sites, pure and simple,” and said “this sort of thing can quickly become addictive… no one, no matter how knowledgeable, can consistently predict what a stock or commodity will do within a short time frame.”
Pape observed that binary options are poor from a gambling standpoint as well because of the excessive “house edge.”
One online binary options site paid $71 for each successful $100 trade.
“If you lose, you get back $15. Let’s say you make 1,000 “trades” and win 545 of them. Your profit is $38,695. But your 455 losses will cost you $38,675. In other words, you must win 54.5% of the time just to break even.”
FACT: In Israel, where a high concentration of such firms can be found, binary options trading was prohibited for Israeli customers in March 2016, on the grounds that it is a form of gambling and not a legitimate investment technique
It’s also important to note that on non-regulated platforms, client money is not necessarily kept in a trust account, as required by government financial regulation, and transactions are not monitored by third parties in order to ensure fair play.
“With such binary option brokers, there is no real brokerage; the customer is betting against the broker, who is acting as a bucket shop. Manipulation of price data to cause customers to lose is common. Withdrawals are regularly stalled or refused by such operations…”
Furthermore, it’s also been hugely speculated that the reason why more popular Binary Options communities tend to promote unregulated platforms like these is because they offer more generous introductory broker commissions, which in my opinion, is totally unethical.
(The topic of introductory broker commissions is something which I’ve discussed previously at great length for my Anti-Scam checklist)
To quote directly from a Binary Options IB advert:
|What are Introducing Brokers?
IB’s or introducing brokers (IB’s) are individuals, independent businesses or entrepreneurs who refer clients to join Binary Options Trading with us. To earn money from being an IB, you do not need initial capital to start, however, once the clients you have referred to the trading site open a trading account, you will start earning money.
Andrew Saks Mcleod from FinanceFeeds.com says…
Message box contents…
“How this works is relatively straight forward.
Trainers do not have to be regulated in any jurisdiction, as they register their companies as educational entities rather than financial advisers or brokers, and do not handle client funds.
Therefore, many of them become introducing brokers of unregulated, small FX firms and then not only sell software and training courses to their delegates, but also place them with firms that are less than well known in order to ensure that their initial deposit is lost, and profits are split between the broker and trainer.
Often, such small firms do not stay in business for very long, because their busines model is to profit from the losses of clients, therefore the idea is to take as much as possible until the leads eventually run out due to bad reviews on consumer forums, and then make off with the money.”
In plain English: The introductory broker makes money off your trading volume, regardless of whether you win or lose. They have no vested interest in your trading success. All they want you to do, is trade for the sake of trading so they do whatever it takes to get you to continue trading, very often by pretending that they care and supplying you “free education/training, tools and strategies” without having to give 2 hoots about whether they actually work or not.
For example, one particular Binary Options site known as The Binary Lab was constantly referenced in our visitor feedback and complaints, prompting us to do a search on Google, which brought up the following links, strongly insinuating that the true source of income for sites like these is nothing more than IB commissions:
Are these accusations true?
I don’t know, and I have no wish to know. I’m not a judge.
This post is solely for education purposes only, and not to serve my personal agenda or vendetta.
The owner of the website, Mr Julian Wong coincidentally happens to be Singaporean and most of his testimonials are not local, which smells pretty fishy to me.
But let’s not play on conjecture.
What I do know for a fact…is this:
The Binary Lab has a list of preferred Binary Brokers and they make it mandatory for new members to join at least one of before they are permitted entry.
Why are they doing this?
I think the reason is pretty obvious, but you are absolutely free to do your own further research and reach your own conclusions.
Personally, I have no interest in becoming a vigilante and for the record, I’d like to state that I have nothing against any particular individual or website.
My mission is to educate and inform, not disparage or name and shame.
Just be sure to take heed and do your due diligence when it comes to Binary Options.
Better yet, avoid it altogether.
Binary option scams have already accounted for millions of dollars being lost and the Singapore Police have issued an official warning below:
According the Singapore Police, it’s crucial to bear the following in mind…
- Even when offered by legitimate sellers, binary options trading is a high risk investment where you can easily lose all that you invest.
- Investments which promise high returns usually come with high risks. Think carefully before making the investment. When in doubt, seek professional advice before engaging in any investment products.
- Dealing with unregulated entities mean you may have very little recourse if things go wrong. Check the list of capital markets services licence holders and the list of licensed commodity brokers to find out which entities are regulated in Singapore.
- Some binary options offered by that regulated entity may not be regulated. This means that you may have minimal recourse if things go wrong.
- Be wary of third party reviews, endorsements or success stories of binary option providers. These reviews and endorsements may have been paid for by the binary option providers.
- Be cautious of high pressure sales tactics used by representatives of binary option providers. These tactics include promises of quality financial advice or easy profits.
- Be careful when sending money to overseas bank accounts via fund transfers, debit/credit card payments and any other modes of payment. Always ensure that the end recipient is reliable before making any transfers or payments.
Always, always remember…
“If it sounds too good to be true, it probably is”.
Caveat emptor my friends, and stay safe!
Dato Jimmy Wong