How Do You Know a Binary Options Brokerage Is a Scam?

A vital question for anyone considering to actually invest through one. And a question that all too many innocent investors rarely ask before signing up with one.

Actually, the question should be inverted: How do you know a binary options brokerage is NOT a scam. Most of them are. You should regard the one you’re considering phony until proven otherwise. To do that begin with the binary option broker’s website itself.

Where Is the Broker’s Headquarters? Where Is It Incorporated?

You may have to squint to see the fine print. It may also be hidden away on a page you won’t necessarily click on like “Terms & Conditions.” They may also intentionally attempt to confuse you by highlighting the address of an “operator,” which usually isn’t the same as the owner. The difference is critical because should you need to instigate legal proceedings, you’ll have to serve the owner the papers.

And don’t assume the company or its employees are physically located in the country whose country code appears before the telephone number you dial. That means nothing in the age of internet telephony.

A disproportionate number of scam binary options sites (and forex, CFD and now even cryptocurrency sites) are owned by companies with addresses in the Marshall Islands, Vanuatu, St. Vincent and the Grenadines, the Seychelles, and a slew of other small, isolated, but independent island nations that you’ll be hard pressed to locate on a globe. These are red flags. The brokers are actually not physically present there. Instead, they incorporate in these places and then rent a mail dump as a legal fig leaf that provides them with three major benefits.

The first is that it’s easy, it costs little and provides a tax shelter. The second is that these places are too small to maintain financial regulatory agencies that exercise the same amount of vigor as their equivalents in the U.S., Canada, the EU, and other industrialized Western countries. In other words, they can get away with it. And the third reason relates to you — if they’re incorporated in countries such as these, how can you sue them?

Your National Regulator

Ultimately, the authoritative source for information about a brokerage is your national financial regulator. Every country has one. And all of them maintain websites with lists of both regulated and unregulated brokerages.

In the United States the agency that supervises these sorts of investments is the Commodity Futures Trading Commission (CFTC). In the UK it’s the Financial Conduct Authority (FCA). Down Under it’s the Australian Securities & Investments Commission (ASIC). In France it’s the Autorité des Marchés Financiers (AMF). In Germany it’s the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin). In Canada, the system is decentralized, so each province maintains its own separate authority. If you don’t know what the appropriate agency is in your country, MyChargeBack maintains a comprehensive list here.

When it comes to your savings and investments, check out every detail before you sign on any dotted line with a binary options brokerage.