Gareth Shaw: Binary options - UK's worst investment con

At the time, people had lost £37m to this scam, and more than 1,800 cases had been reported to the police.

Over the past six months, things have got worse. It’s now so bad that Which? has declared binary options scams ‘Britain’s biggest investment con’.

Our latest investigation, which involved going undercover to pose as potential investors, shows why.

Britain’s biggest investment con, you say? But what on earth is a binary option?

Buying a binary option is a way of betting on the movement of a stock market, exchange rate or another financial instrument. You wager on whether a market will be above or below a particular level at some point in future, be it in a few minutes or weeks.

But there are only two possible outcomes – you either win or lose.

This can be a legitimate way of gambling on financial futures, but the industry is riddled with rogue players who have unfair contracts, rigged data and practices so stacked against investors that millions of pounds are being lost.

People in the UK have lost around £50m to ‘binary options’ scams, according to the police.

In 2017 alone, £18m has been lost.

Let’s start with dodgy small print. Many brokers of binary options entice customers in with an ‘introductory bonus’. So, if you were to invest £5,000, you’d be given another £5,000 as an initial deposit. But in one set of terms we saw, you wouldn’t be able to get your cash out until you’d traded 40 times your deposit – meaning you can’t get a penny out of the broker until you’ve gambled a staggering £200,000.

And in our investigation, we found other brokers that allowed players to only withdraw their profits, not their initial investments.

Some brokers had terms dictating that they owned their investors’ money, meaning they could use other people’s money for their day-to-day business operations.

As any seasoned investor will know, legitimate trading firms must separate client money from their own, so that if they go bust, investors can have confidence that their investments will still be valid and active.

Onerous terms are one thing. But we also found evidence suggesting some brokers actively manipulate the market data clients are betting on and can therefore control whether the victim wins or loses.

One company, which has since been closed down, allowed people to bet on the price of gold over periods as short as a minute, despite the fact that there is no objective way to measure the gold price over this time frame.

It suggested that people bet on a random number that looked like the gold price, but was actually controlled by the broker who was gaining financially from every lost bet.

This scam is widespread. There are hundreds of websites all over the world offering binary options trading, and we found job adverts online for people to write fake reviews for the sites, and videos on YouTube making dubious claims about the upsides of binary options trading.

The result of this?

Thousands of people conned out of money. Out of the dozens of victims we’ve spoken to this year alone, we’ve seen people losing life-changing sums of money.

Regulators and the police have issued stark warnings about the dangers of binary options trading, but at the moment consumers have little protection.

Binary options are not currently regulated as financial products in the UK.

But this will change in January 2018 when the Financial Conduct Authority starts to oversee the industry.

Consumers then will have access to the Financial Ombudsman Service, which mediates disputes between customers and financial firms, but only if that company is regulated.

The problem is, many of the rogue firms victims deal with operate with no regulatory approval at all.

Until then, getting your money back is tough.

If the company you’ve traded with isn’t UK based, you might struggle to successfully take legal action.

If you used a credit card to make a deposit, you could claim under Section 75 of the Consumer Credit Act to try and recover your money, although this won’t always work – as credit card companies treat deposits as a cash withdrawal.

My advice is to steer well clear of anything to do with this poisonous industry.

We’ve seen how people’s lives have been ruined by the dark practices of binary options brokers, and our investigation has shown just how pernicious the scams are.

Binary options brokers promise quick wins and big spoils – it pays to remember that nothing in the financial world is ever that easy.