Are binary options a good way to make money quickly and easily?
Are you looking for an innovative investment such as binary options to make a lot of money quickly? Be careful, investments that promise high returns are risky and may not match your investor profile. Before investing, make sure you understand the characteristics and risks of binary options.
What is a binary option?
Binary options are like an “all or nothing” wager. You bet that an asset will rise or decline in value within a very short, specific amount of time, for example 10 minutes. At the expiry time, you face two possible outcomes: You receive a pre-determined cash payout (sometimes called the “premium”) or you lose your wager.
For example, you might expect the Canadian dollar to increase in value against the U.S. dollar within the next ten minutes (the asset could also be a stock). You therefore buy a $100 binary call option in order to profit from this possible rise in price. However, another person (a trader) might wager that the Canadian dollar will decline against the greenback. He will therefore buy a $100 binary put option. When the option expires, if the Canadian dollar has increased as you wagered, you will recover your $100 investment plus a pre-determined fixed amount (e.g., a payout of 80%, or $80). As for the other person (the trader), who predicted the Canadian dollar would drop in price, he loses his entire wager.
It is worth stressing that the currency market is complex and volatile. It is intended for investors who have the knowledge, time and resources to track it.
Beware if you’re told there’s no risk!
Some websites encourage you to become a trader of binary options. They may offer simulated transactions using fictitious amounts so that you come out a winner. However, the results might be quite different when you invest with actual money. They claim that you can’t lose money, that it’s risk-free and that they’ll reimburse you if you lose your wager. However, if you read the fine print, you’ll see that you could lose your investment.
Websites where binary options are traded are sometimes associated with fraudulent schemes, including software manipulation to generate trades at a loss, but to their advantage.
Several binary options websites are based abroad and do not have a licence from the Autorité des marchés financiers (“AMF”). Once your money is transferred to another country, your ability to recover any funds in the event of problems is very limited. The AMF maintains a list of websites that are not authorized to offer such investment products and services in Québec. The list is updated when new unauthorized sites are brought to its attention. Check our Investor Warnings section regularly to make sure you have the most up-to-date list. This list is not exhaustive; always check whether the person or company with whom you are considering investing is duly authorized.
Investors who lose money on binary options websites often receive unwanted calls afterwards from individuals claiming to be able to help them recover their investment in exchange for an upfront payment or a file opening fee. This is a typical “double dipping” or “recovery room” strategy used by scam artists to defraud their victims a second time.
Whether on the Internet or in person, offering investments is a regulated activity. The person or company asking for your money must be registered with the AMF and authorized to sell you the products being offered. Make sure you check whether the person or company is entered in the register of firms and individuals authorized to practise.
Watch our video on binary options with Moad Fahmi, financial markets specialist.