FINRA Issues Investor Alert—Binary Options: These All-Or-Nothing Options Are All-Too-Often Fraudulent
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today issued a new Investor Alert, Binary Options: These All-Or-Nothing Options Are All-Too-Often Fraudulent. FINRA published the alert to warn investors that trading binary options can be extremely risky. Unlike other types of options contracts, binary options are all-or-nothing propositions. When a binary option expires, it either makes a pre-specified amount of money, or nothing at all, in which case the investor loses the entire investment. Trading binary options is made even riskier by fraudulent schemes, many of which originate outside the United States.
"Calls to the FINRA Securities Helpline for Seniors – HELPSTM suggest that scams involving binary options and their trading platforms are alive and well," said Gerri Walsh, FINRA's Senior Vice President for Investor Education. "Callers describe situations in which purported binary options trading firms don't deposit investor funds into the investor's account, deny requests to return funds, or require a fee be paid in order to receive a return of their investment assets. In at least one situation, a fraudster posing as a regulator accused the investor of engaging in illegal binary options trading and demanded payment of a fictitious fine."
Senior Helpline calls suggest investors should be particularly wary of non-U.S. companies that offer binary options trading. These include trading applications with names that often imply an easy path to riches, and demo accounts that allow users to try their hand at binary options trading without risking personal assets. Such accounts can serve as bait to lure investors into sending money to fund a "real" trading account, or open the door to identity theft, by requesting an array of personal information.
Binary Options recommends investors take the following precautions before investing in binary options:
- Use FINRA's BrokerCheck® and the National Futures Association's Background Affiliation Status Information Center (BASIC) to check the registration status and background of any firm or financial professional that you are considering.
- Check the CFTC's website to see if the binary options trading platform is a designated contract market—currently there are only three such markets offering binary options.
- Use the SEC's EDGAR system to check to see if the binary options trading platform has registered the offer and sale of the product with the SEC.
- Check the SEC's website regarding exchanges to determine if the binary options trading platform is registered as an exchange.
FINRA's alert cautions that unless you can verify the registration status of the trading platform, products, firms and financial professionals, do not trade with them, do not send any money, and do not provide your personal information.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.