Binary options is a financial product which only requires traders to press one of two buttons. They can press the ‘call’ button if they think the value of an underlying entity will increase. On the other hand, they can press the put option if they believe the entity will decrease in value. The expiration time of the contract starts from as little as 30 seconds.
The ease of registration and small minimum investment ($10) created a booming industry. Celebrities were paid to promote. Courses and retreats sprung up to capitalise on the hysteria. Binary options are marketed as such a ‘sure-fire’ investment that few investors conduct research even though there is a lot of free information available.
Unlike traditional trading platforms, many binary options brokers operated without a license. European and American market watchdogs regulators rushed in to set requirements for opening a brokerage. For instance, in the United States, brokers need to be registered and based within the country and have sufficient funds to ensure that customers will always get their money if the broker collapses. This is the tip of a long list of requirements.
Consequently, most binary options operators have chosen to maintain their operations in less stringent countries such as Cyprus. However, this means that customers have little to no protection. A broker could hold their funds, or make huge returns whether they win or lose a trade. The promise of huge profits from binary options will spur people to continue trading with unlicensed brokers.
The rise of cryptocurrency coupled with the popularity of binary options created a perfect storm for fraudsters. They could remain anonymous while promoting a product which most users thought was regulated. Fraudsters would set up a nicely designed binary options website, take deposits via cryptocurrency, wait a few months and then disappear with millions of dollars.
In January 2019, the FBI launched a case against Israeli based company Yukom. They control popular binary options platforms BigOption and BinaryBook. Allegedly, Yukom circulated false information such as claiming a location in London, and only profited when customers won. Allegedly, customer service reps encouraged customers to make large deposits. They received a commission for deposits. The Yukom case isn’t uncommon. There is much money to be made in binary options because investors chase losses and borrow money to trade. Some have described it as borderline gambling.
The move to crunch down on the binary options market might only move it underground. With potential returns as high as 80% (per trade) it is understandably alluring. The anonymity of the internet enables unregulated options brokers to open and close at will. When this happens, traders have no legal grounds to get their money back.
With low-interest rates and complex investment options, it is little surprise that binary options is so popular. Arguably, the ‘traditional’ investment options are challenging to navigate. Plus many require capital which is inaccessible to the everyman. Critics argue that the financial services industry should make it easier for the ‘man on the street’ to invest.
In conclusion, as governments crack down on the binary options industry, brokers are moving underground. With millions of dollars to be made, the fight might end up being similar to the war on drugs. The game of ‘whack a mole’ could go on forever.