The worst part about trading binary options is ending up with a binary broker scam. A binary broker scam is very simple to detect if the trader would take two minutes to read how it works.
Back in 2008 when binary options where first introduced, a few online casino operators started offering binary options to their gamblers. As with the online casino world, there are legitimate sites and rogue sites.
By 2011 binary option trading had become more popular and there were over 50 websites offering online trading services.
Along came CySEC (Cyprus Securities and Exchange Commission) in 2011 and started issuing licenses to binary option trading sites as financial institutions. Just like CySEC regulated Forex brokers, they started regulating binary option brokers.
By 2014, the number of online binary option brokers has ballooned to over 300 different brokers offering binary option trading. Less than 20 of these binary brokers actually have a license. The rest are unlicensed binary option brokers.
The Binary Broker Scam works like this.
A trader opens an account with a broker who has a very nice and professional looking trading site. Many of these brokers do not have an address or a phone number on their website.
The trader deposits money into the account and starts trading. After the trader makes some profits trading, they submit a withdrawal request. And then the problems start.
The trader usually did not do any research to see how to withdraw profits.
The trader did not check to see if anyone answers the phone number at the broker.
The trader didn’t read the fine print which says that the special bonus will cause them to not be able to withdraw their funds until they trade 50 times the amount they received.
So what can a trader do to prevent getting ripped off by a binary broker scam?
They can read what the US SEC wrote in June 2013 about binary broker scams here. Basically they tell US residents not to trade binary options with an unregulated broker.
They can check that the broker they are going to trade with has a license from CySEC, see here.
And potential binary option traders should ask their friends which broker they are trading with and if the broker is a good broker or a scam.