Scams on the Binary Options Market04 Apr 2013, 08:21
The term “scam” was often used in correlation with different financial markets and it is usually associated with brokers on a certain market. Binary options brokers were also subjected to such accusations, but this does not mean that they are all scammers or that the industry is fraudulent in itself.
Scam, as defined in the dictionary, refers to a fraud or a dishonest practice. Even though numerous brokers are accused of being fraudulent, accusations aren’t always legit. There are indeed cases when traders need to protect themselves from obscure practices, but there are also brokers who are being discredited by their competitors or by traders who couldn’t become successful on the market. Most so-called scams can be avoided if traders read the terms and conditions of their brokers carefully and if they pay attention to certain criteria.
Regulation of the Binary Options Market
Are All Brokers Alike?
It is very easy nowadays to become a broker. More than that, all brokers on the market seem to offer the same features, so one might be tempted to believe that they are all alike. There are three main web-based platforms for trading binary options and most brokers activate on one of them. This
means that they are white labeled, but in fact anyone with a minimum capital can become a broker by buying the platform, the hosting account and the logo. However, the fact that they all use the same platforms is about the only similarity among brokers.
What Differentiates Brokers?
The criticism against brokers is focused on three main points: their pricing policy, their delays in processing payments or executing withdrawal orders and their misleading bonuses. In fact, the key aspect that should differentiate a reliable broker from less trustable ones is solvency. As long as
the broker has the financial ability to execute withdrawal orders, all other issues can be avoided by reading and understanding the terms and conditions of brokers.
Traders have to understand that each time they make profit, the profits of brokers diminish. No broker will risk his solvency by exposing himself to numerous winnings, so they are all looking for methods to prevent losses. For instance, some brokers might refuse to place a trade if this is exclusively in the favor of the trader.
Numerous brokers also use spreads when determining the prices for a contract. This means that their price is different from the market price. On options with a short expiry time this can lead to price manipulation and to reduced profits for traders. Brokers tend to limit their potential losses and that’s why they use different factors for calculating prices. They refer to their prices as being the ones which the market is willing to pay, but this is a very subjective criterion. Traders can protect themselves by staying way from short term options and thus avoiding price manipulation.
This is the most important aspect to consider when choosing a broker. Solvency of the broker is extremely important because lack of liquidity can prevent traders from actually cashing their profits.
It is best to use the same method for withdrawals which was used for depositing money. It is not uncommon to experience delays of several days, but anything more than that can be interpreted as a sign that the broker does not have enough money to honor your request. If a client wins big for an
extended period of time, a broker might not be able to pay. This is a common problem among new brokers who go into business with a relatively low capital. Brokers who don’t have the resources to resist to potential losses are not a good choice.
These are not in fact misleading at all. It is hard to imagine that brokers simply give money for free. Otherwise said, you can’t register an account, perform a trade and then withdraw your money together with the bonus received from the broker. You usually have to trade for a while until you are
allowed to withdraw funds. However, this condition is usually clearly stipulated and traders would be aware of it if they read the terms and conditions carefully.
As long as you are aware of the fact that bonus offers come with strings attached and that brokers use spreads for determining prices, you can hardly call any broker a scammer. In fact, you only need to pay attention to the solvency of the broker and to avoid new ones which might face liquidity
problems sooner rather than later. There is hope that once the new regulations on the binary options market will take effect, the number of accusations concerning brokers will reduce.