The UK financial watchdog recently warned that hundreds of thousands of pounds are lost every year to investment scams. Last month I blogged about How To Spot A Scam. This month I want to concentrate on a growing segment of this ‘market’, binary option scams. So, what are binary options?

A binary option is a financial option in which the payoff is either some fixed monetary amount or nothing at all. The binary option player faces a simple ‘yes’ or ‘no’ proposition – will the underlying stock / commodity / currency / index be above a certain price at a certain time?

But here’s the problem …

1. Deals were often promoted on Facebook, Instagram and Twitter alongside images of luxury cars or watches to entice people to invest while often fraudulently using fake expert or celebrity endorsements. It’s a fact that people ‘investing’ online are much less likely to double check claims and are prone to the addictive attractions of instant online gambling.

2. Some binary option internet trading platforms may overstate returns on investment by advertising a higher average return than a customer should expect given the payout structure.

3. Many binary option brokers fraudulently distort prices to cause customers to lose. While advertised to punters as requiring little or no knowledge of the markets, no one, no matter how knowledgeable, can consistently predict what a stock or commodity will do within a short time frame – except a broker with an unfair ‘house edge’.

4. Even if a client has good reason to expect a payment cash withdrawals can be regularly stalled or refused or the broker will simply stop answering your calls.

5. On non-regulated online platforms client money may not be kept in a segregated account as required by most financial regulators and transactions are not monitored by third parties in order to ensure fair play.

6. In some cases there is no real brokerage at all – the fraudsters don’t actually place trades, they simply disappear with innocent investors’ money.

To sum up, binary option trading websites are so prone to fraud that they are banned by regulators in many jurisdictions. The FBI is investigating binary option scams throughout the world, and the European Union is updating regulations that will ban binary option sales. Facebook, Instagram and Twitter just recently banned binary option and cryptocurrency ads, but unfortunately not before a friend of mine succumbed to a bitcoin binary option scam which had fake endorsements by Dragon’s Den and Money Saving Expert Martin Lewis. To quote the latter (correctly!), when it comes to binary options, do not touch with a bargepole.