Singapore Police Force warns members of the public that there has been a sharp rise in complaints involving online trading in binary options.
Binary options trading is attractive because it sounds simple and the option providers or platforms often promise high, quick and safe returns. In reality, binary options are speculative and risky, and many online platforms offering binary options trading are fraudulent.
With a binary option, people are trying to predict whether the price of the underlying asset will be above or below a specified price at a specified point in time. Usually that specified point in time is very near, ranging from a few minutes to a few months in the future.
The underlying products can range widely, and include shares, currencies and commodities. Unlike other types of options, holding a binary option does not give you the right to buy or sell the underlying asset.
People receive a fixed payoff if the prediction is correct, but will lose the entire investment if the prediction is wrong. That is why binary options are often also called “all or nothing” options. The risk of losing the entire investment is high, because correctly predicting short term price movements is difficult.
The strike price is the reference point to determine if people have made or lost money. Here, the strike price for USD/CAD at 15:00 hours for a 5-minute binary option is 1.255. People can make a prediction whether the price of USD/CAD will be trading higher or lower than the strike price of 1.255 in five minutes’ time i.e. 15:05 hours. If the prediction is correct, people make USD0.70 on every USD1 they put in. If the prediction is wrong, the USD1 is lost.
This sounds like a highly attractive proposition. It is easy to understand. The starting investment amount can be low, the timeframe for knowing if you won or lost is short, and the potential payoff is usually high. All people need to do is open an account with the online trading platform and they can start investing.
It is difficult to make the correct prediction, especially when the time to expiry of the binary option is short. Due to the short time frame, it is very likely that you cannot change your prediction or re-sell your option once you make your investment. This makes it extremely easy to lose your entire investment.
To date, the Police stated that CAD has received more than 30 reports from investors who have lost more than $1,000,000 to unregulated binary options trading platforms. Most of the investors are local Chinese males aged between 31 and 50. Investors include finance professionals as well as retirees.
Encouraged by initial profits and promises made by the platform staff about financial advice, more bonuses and attractive rewards, most of the investors found it difficult to stop at one small investment and will put in more money. In these cases, the investors either lost all their monies or could not withdraw the balances in their accounts. Some also had unauthorised withdrawals made in their debit/credit cards after they had handed over their card details for payment.
The Police said that most of the binary options trading platforms we have encountered are usually unregulated entities based outside Singapore. The three most common places that they claim to be operating from are the United Kingdom, Cyprus and Hong Kong SAR. The victims faced difficulties contacting the foreign operators
The Police advises members of the public to keep in mind the following points if they are considering binary options trading:
- Even when offered by legitimate sellers, binary options’ trading is a high risk investment where you can easily lose all that you invested.
- Investments which promise high returns usually come with high risks. Think carefully before making the investment. When in doubt, seek professional advice before engaging in any investment products.
- Dealing with unregulated entities mean you may have very little recourse if things go wrong. To find out which entities are regulated in Singapore, you may want to check the list of capital markets services licence holders under Monetary Authority of Singapore (“MAS”) (https://masnetsvc.mas.gov.sg/FID.html) and the list of licensed commodity brokers under International Enterprise (“IE”) Singapore (http://www.iesingapore.gov.sg/E-Services/Commodity-Trading-Act/CTA-List-of-Licensed-Commodity-Brokers). You may also like to check MAS Investor Alert List (http://www.mas.gov.sg/IAL.aspx) which provides a listing of unregulated entities which may have been wrongly perceived as being licensed or authorised by MAS.
- Even if you are dealing with an entity regulated in Singapore, some binary options offered by that regulated entity may not be regulated. This means that you may have minimal recourse if things go wrong. When in doubt, you should check with the regulated entity before investing in any binary option it offers.
- Be wary of third party reviews, endorsements or success stories of binary option providers. These reviews and endorsements may have been paid for by the binary option providers. They may also attempt to gain your trust by warning you against a particular binary option provider while directing you to another binary option provider connected to them.
- Be cautious of high pressure sales tactics used by representatives of binary option providers. These tactics include promises of quality financial advice or easy profits.
- Be careful when sending money to overseas bank accounts via fund transfers, debit/credit card payments and any other modes of payment. Always ensure that the end recipient is reliable before making any transfers or payments. Likewise, do not give your personal particulars such as your name, identification number, passport details, bank account or credit/debit card details to others without first verifying whether they are legitimate.