The reason why this question comes up in many online forums and Q&A sites is because of the negative perception that binary options trading has received in several quarters. Firstly, binary options trading activity is not considered a type of investment vehicle to make money in many jurisdictions. It is viewed as a form of gambling and not subject to taxation. Gambling is an activity which is viewed negatively by the public, and it is not common to hear phrases like “gambling problem” or “gambling addiction” used in describing the negative outcomes of people who engage in this activity. There is a popular saying that “the house always wins” when describing the success rate of gamblers, an adage that clearly casts a negative shadow on this trading activity and anything associated with it. When we have a situation where binary options is likened to gambling by the government authorities, it casts a shadow on this trading activity and likens it to an elaborate system where only the brokers and dealers win and traders always lose out. No trader will want to be a part of this.
Another reason why fixed odds’ trading is likened to scam is the largely unregulated nature of that market and many brokers operating there. Every human being has an element of greed to gain an advantage and make money if given the opportunity. When so many people are placed in this large money pool where there is no regulation and brokers are springing up in hundreds daily, the bad guys will come around and many people will get shortchanged while others smile to the bank. We have seen in the last few years the collapse of Ponzi schemes like those run by Bernie Madoff. This was a trading scam operation that ran almost undetected for so many years in an environment with the tightest of regulatory oversight, yet Bernie Madoff was able to take many to the cleaners. If this could happen in such a tightly regulated environment, what is to say that in a largely unregulated environment like the fixed odds market, such things would not be happening?
Indeed, the number of brokers in this arena has exploded in the last two years and with that has come a lot of scam-like stuff like traders’ accounts being seized by unscrupulous brokers and funds confiscated for ambiguous infractions, or withdrawals never getting fulfilled. We have also seen bonus awards being interwoven with trading volume requirements that keep clients persistently in the system, making money for brokers without getting any themselves.
It is these situations that have made many to label binary options trading as a scam operation. But is this truly the case?
The binary options marketplace is an arena where money can be made and it is not a scam. However, the issues with this market have to do with perception and regulation. Better regulation can cause a change in perception, and this is why the Cyprus Securities and Exchange Commission (CySEC) has taken steps to review their previous standoffish position and address the issue of regulation of digital options. This has become imperative given the great number of brokers operating from Cyprus. It is now a requirement for a company operating as a binary options broker in Cyprus to get full regulatory status as such. In addition, one of the platform providers (SpotOption Ltd) has created a division to handle licensing of any broker that has applied to use its platform for trade purposes. Another event that will surely boost investor confidence is the moves by option brokers like Banc de Binary and OptionFair to secure regulatory status in other established jurisdictions such as the UK and US.
While these steps will definitely start to boost trading confidence in the market and convince people that binary options is not scam, a lot still needs to be done in order to get people on the side to review their stand and trade in this arena. Traders tend to behave like a herd, and will perceive the binary options market as a no-scam zone when regulatory matters are vastly improved. Improved regulation will create improved perception which will make way for many more players in the system.
This is not a job for regulators alone. Any broker worth its salt should be part of this effort. If a broker knows that the income to the firm will be boosted by increased market confidence, such a broker would do its utmost to keep the trade environment clean. Any trader that makes money on the platform of a broker will trade continuously and generate income for that broker.