Binary options trading seems to have grown in popularity in the United States during the past year. However after international online gambling companies as well as online poker sites were ousted from the country in 2011 it appears that binary options brokers are next in line for a crackdown by regulators.
Right now however unsuspecting traders continue to be lured by brokers that promise massive earning without much effort and work… the same way online casinos did with gullible people in the past.
Many people have warned that binary options are nothing more than online gambling such as roulette and craps. Binary trading is not even a real form of trading warned Forbes in 2010 way before this practice became prevalent in the United States.
Since then several experts have pointed out that in binary options it is extremely difficult to accurately predict the outcome of a bet. It is hard to see any objective and measurable method to influence the winning chances in this form of online “trading”.
In order to win in binary options the trader, or more accurately ‘player’ must predict the future movement of certain assets such as stocks, indices and forex currency pairs. For this reason, at first sight binary options might appear as legitimate investing and trading for those who lack of experience.
However, the catch is that in binary options you will not be actually investing any money in anything. You will in fact be betting money on a certain outcome. If your prediction proves to be right then you will of course be paid out a certain amount of money that is larger than your investment, however, if your prediction is not correct all the money “invested” is lost.
When making real and authentic forms of investment you can also lose all your money if you make an inaccurate prediction. However, when investing in an actual asset your profit will depend on the rise and fall of the value of certain assets. If you have purchased Apple stocks worth $300 and then sell them at $500 then you make money. Still, if the value of the stock falls to $290 you can still sell them and recover most of your money… or continue to hold to them and hope that their value will increase again sometime in the future.
In binary options trading, on the other hand, if your prediction is incorrect, you will lose all your money. In binary options trading, your predictions are also made for a pre-established time frame. This wouldn’t necessarily be that bad if it were not for the fact that usually this time frame is for a very short period of time, typically minutes or hours or a particular day.
In binary options trading you must correctly predict if the value of an asset (like Apple’s stocks) will rise or fall during the time frame of just a few minutes. You might be the best trader on the planet but making accurate predictions for a timeframe of just minutes is completely impossible.
And… Binary Options aren’t really legal in the US
At this moment the kind of binary options that are being offered by around 95% of all brokers out there are not legal in the United States. Brokers that offer these kinds of services are explicitly breaking United States law.
This has been clearly demonstrated when the US SEC issued a statement last year warning US citizens not to engage in binary options offered by companies located in other countries.
What more proof do the promoters of binary options need in order to realize that this practice is simply not yet legal in the United States? Promoters of this form of “investing” often say that it’s not illegal for people to engage in binary options. This statement is in fact true, however there is more to it than these claims.
While it is not illegal for US citizens to trade binary options, it is illegal for foreign companies to solicit or facilitate US citizens to trade. US traders themselves will never face any legal action for trading binary options. Brokers, on the other hand, will.
This however does not mean that traders are safe. They can still lose all their deposited money if the US government takes down a broker. Usually, when this happens the government confiscates all of the broker’s assets without the possibility for traders to recover their deposited money. So, while traders do not have to fear criminal charges of any kind, they are still exposed to losing all of their money held on account from one day to the next.
However, according to information shared by some websites a large number of offshore brokers continue to do business in the US.
Most of these brokers are located in jurisdictions where they believe they can avoid legal consequences. However, at some point in the future the day will come when the US government will crack down on them and confiscate all of their assets.
At the end of the day it will be the average trader that will be affected who was (falsely) promised massive profits and winnings if he/she registers and deposits money at websites of this kind. So, folks, never “trade” binary options, at least not until it’s properly regulated in the US and other reputable countries such as the UK.
Also, if this practice ever becomes legal (it might!) please understand that it is not a real form of trading. It’s good old gambling, only that the roulette wheel has been replaced with stocks, forex currencies and other assets. If you understand this and all related risks and treat binary options as a fun pastime like poker, then you’ll be fine. Never believe for a second that you can become rich doing this though, because you almost certainly won’t.
Additional reading and sources:
https://www.sec.gov/investor/alerts/ia_binary.pdf– SEC warning on binary options fraud
http://forexmagnates.com/the-aftermath-of-us-regulatory-warning-against-binary-options-whats-the-future/ – Future prospects and legal development of binary options
http://www.optionsadvice.com/usa-brokers/ – Offshore brokers still active in the US
http://www.cftc.gov/PressRoom/PressReleases/fraudadv_binaryoptions – CFTC warning on binary options fraud