SINGAPORE: There has been a "sharp rise" in scams involving online trading in binary options, said the police on Wednesday (Dec 14), with more than 30 reports of such scams lodged to date, and investors losing more than S$1 million to unregulated binary options trading platforms.
Most of these investors are mostly local males aged between 31 and 50, and include finance professionals as well as retirees, police added in a media statement.
Police warned that binary options trading is attractive as it sounds simple and the option providers or platforms often promise high, quick and safe returns.
In reality, binary options are speculative and risky, and many online platforms offering binary options trading are fraudulent, police said.
They said: "Encouraged by initial profits and promises made by the platform staff about financial advice, more bonuses and attractive rewards, most of the investors found it difficult to stop at one small investment and will put in more money.
"In these cases, the investors either lost all their money or could not withdraw the balances in their accounts. Some also had unauthorised withdrawals made using their debit or credit cards after (handing) over their card details for payment."
ALL OR NOTHING
In explaining how binary options work, the police warned that the risk of losing one's entire investment is high, because it is difficult to predict short-term price movements correctly.
Traders try to predict whether the price of the underlying asset will be above or below a specified price at a specified point in time. This can range from a few minutes to a few months in the future.
Traders get a fixed pay-off if their prediction is correct, but lose their entire investment if they are wrong.
"That is why binary options are often also called 'all or nothing' options," said police.
"It is difficult to make the correct prediction, especially when the time to expiry of the binary option is short. Due to the short time frame, it is very likely that you cannot change your prediction or re-sell your option once you make your investment. This makes it extremely easy to lose your entire investment."
Police added that most of the binary options trading platforms encountered are usually unregulated entities based outside Singapore.
The three most common places that they claim to be operating from are the United Kingdom, Cyprus and Hong Kong, and victims usually face difficulties contacting the foreign operators when things go wrong, said police.
THINKING OF TRYING BINARY OPTIONS TRADING?
In their statement, police offered the following advice for prospective traders in binary options:
- Even when offered by legitimate sellers, binary options trading is a high risk investment where you can easily lose all that you invest.
- Investments which promise high returns usually come with high risks. Think carefully before making the investment. When in doubt, seek professional advice before engaging in any investment products.
- Dealing with unregulated entities mean you may have very little recourse if things go wrong. Check the list of capital markets services licence holders and the list of licensed commodity brokers to find out which entities are regulated in Singapore.
- Some binary options offered by that regulated entity may not be regulated. This means that you may have minimal recourse if things go wrong.
- Be wary of third party reviews, endorsements or success stories of binary option providers. These reviews and endorsements may have been paid for by the binary option providers.
- Be cautious of high pressure sales tactics used by representatives of binary option providers. These tactics include promises of quality financial advice or easy profits.
- Be careful when sending money to overseas bank accounts via fund transfers, debit/credit card payments and any other modes of payment. Always ensure that the end recipient is reliable before making any transfers or payments.