Like any new financial instruments, binary options are normally taken with a pinch of salt in some circles. Binary options not only promise huge returns in a short period of time, they also use financial lingua that may confuse some of the traders. As such, it is quite possible for uncouth traders and brokers to create scams within the mechanisms of the trade of binary options.
Reasons why binary options trading is not a scam
However, it is important to point out that the trade of binary options is not a scam. The business models that are used by most brokers have sound financial bearing or standing, thereby cementing the position of the binary options as legitimate investments; for instance, if a contract expires “out of the money”, then the broker usually returns an agreed percentage of the principle to the trader. In addition, brokers usually give bonuses to new clients to encourage activity in the market. This is contrasted with scams that rely on constant investments brought in by new members or older ones, while ensuring the payouts are very low and far apart.
To add on that, the brokers in binary option trading usually allow the trader to take out investment contracts based on actual assets of their choice. The payout percentages and amounts are usually agreed upon at the start of the contract, ensuring all the players know what they stand to gain if they strike price and what they stand to lose upon the expiry of the contract. This feature reduces the wiggle room for any fraudsters.
Protection from scams
Like in any market, there are bound to be uncouth traders who would prefer to take advantage of the naivety of traders or brokers. However, there are numerous ways that an individual can protect himself or herself from such scams.
Country of origin – the first step in determining the authenticity of a claimant or trader is the origin of the brokerage firm or broker. Some countries have very poor regulatory infrastructure that leave the traders open to scams. As such, brokers from these countries should be treated with some level of scepticism with more effort being put in background checks.
Binary options broker’s page – the binary options broker’s page has a list of certified brokers who are regulated and accredited by various agencies. In addition, you may find a list of the blacklisted brokers or scam artists from this page. While searching for the blacklisted brokers, it is important to note that due to tough business environments, some lists may be designed to hurt competitors. As such, it is advisable to determine the credibility of the list that you intend to refer from.
Research – undertaking proper research on the broker that you intend to deal with is very important. This you can do by having an ongoing correspondence with the broker as you seek more information from them. You can also find out more information about brokers by asking other brokers and traders in forums or groups.
All in all, it is very important to protect yourself, not only from the scam brokers but also scam trading floors. As such, keep your information updated on the regulatory laws in the country in which you operate so that you can get yourself on the right side of the law.