The Financial Industry Regulatory Authority (FINRA), the self-regulatory organization that oversees brokerages firms, issued an Investor Alert last week warning investors about the significant risks posed by trading binary options.
A binary option is a type of option in which the payoff can take only two possible outcomes, either some fixed monetary amount (or a precise predefined quantity or units of some asset) or nothing at all. Because of this “all-or-nothing” situation, a binary option can expire with an investor either making the pre-determined amount of money or nothing at all. In addition, FINRA cautions investors that trading binary options is even riskier given the prevalence of fraudulent schemes often originating from foreign countries.
The Investor Alert suggests that prior to investing in a binary option, investors take precautions in order to limit the risk of fraud. These actions include checking the broker through a FINRA BrokerCheck® to view background information on a financial institution, investment adviser, or broker-dealer. This allows you to check for any history of customer complaints and regulatory actions against the broker and their firm.
Another resource is the Commodity Futures Trading Commission’s (CFTC) website, which can be used to determine if the binary options trading platform is one of only three designated contract markets.
Additionally, the EDGAR system offered by the SEC can be used to see if the trading platform has registered the sale and offer of the product with the SEC.
FINRA states that if you are unable to find the necessary information to verify the validity of the binary option trading platform, the broker, the product, or the financial institution, you should not invest your money or provide personal information.
If you have invested in a binary option and lost your entire investment, you may have a case for securities fraud or other misconduct. Call Meyer Wilson today for your free case evaluation.