Which? is warning consumers against ‘binary options’ investments after its investigation into the industry exposed unfair contracts, rigged data and practices so stacked against investors that millions of pounds are being lost with Which? aware of dozens falling victim.
According to the latest police figures, around £50 million in total has been reported lost to ‘binary options’ scams, including £18 million reported in 2017 alone – although the figure is likely to be much higher. Which? has heard from numerous people who have lost thousands of pounds to the scams, with some having even lost six-figure sums.
Binary options companies claim to offer investors a high-risk way of making money by speculating on short-term market movements. It effectively works by placing a bet on whether the price of a share, stock market or other asset will be above or below a set price in future.
However, they have little in common with legitimate stockbrokers. Investors bet directly against the company, rather than against the wider market and brokers benefit directly from the victim’s losses, making them work like bookmakers. Your losses are their gains and vice versa. They might let you win in the early stages, but only to encourage you to bet more – because they know they will win in the end. In the worst cases, Which? found evidence that suggested some brokers actively manipulate the market data – meaning they could control whether the victim would win or lose.
Which? looked into the practices of one such company – Magnum Options, which has since been shut down by the Insolvency Service. The company allowed people to bet on the price of gold over periods as short as a minute. However, a gold trading expert confirmed there was no objective way to measure the gold price over this time frame. What’s more – we could not replicate the gold price data with external sources – suggesting people were simply betting on a random number that looked like the gold price but was actually controlled by the broker who gains financially from a lost bet.
Furthermore we discovered one company BinaryStation.com, which allows anyone to build their own website for a few thousand pounds. The website seems to encourage market rigging by offering potential site owners the right to generate pricing that the clients receive from their own platform, “So there is never a mismatch.”
Which? is concerned by the terms and conditions of every company it reviewed. We discovered many offered initial bonuses, which required investors to trade up to 40 times their deposit before they were allowed to cash out any of their money. Someone investing £5,000 might receive an initial £5,000 deposit – but they wouldn’t be able to withdraw a penny before they’d gambled £200,000.
Some sites cited customers would only be allowed to withdraw their profits, effectively banning them from getting their original stake back. Shockingly, others had clauses which meant the money in the account was effectively owned by the site and could be used for their day-to-day business operations.
Which? heard from countless people who have fallen victim, including:
- An individual who was charged twice for an initial investment with BinaryTilt of £10,000 following a persuasive sales pitch. After trying to reclaim the money he discovered a £4,200 bonus had been added which forced him to trade his money many times over before he could withdraw a penny.
- Another individual invested £60,000 with Magnum Options and made dozens of five-figure bets, each lasting a few seconds. However, Which? believes Magnum Options was acting as a bookmaker and such transactions were rigged. The individual lost his entire investment.
Which? is keen to warn potential investors to be vigilant to this type of scam and fraudulent company. It is warning against dealings with companies that contact people out of the blue. People are encouraged to report crimes to Action Fraud and the Financial Conduct Authority to raise the profile of such crimes and allow the police to better target these companies. Finally, investors can try to use Section 75 of the Consumer Credit Act to reclaim their money where possible.
Harry Rose, Which? Money Editor said:
“People are losing serious amounts of money to these so-called investments, many of which are nothing more than scams.
“This high-risk form of gambling is enticing people and trapping them with unfair contracts that all but guarantees their money will be lost. Our message to anyone thinking about investing in binary options is simple – don’t.”
Notes to editors
Binarystation.com openly advertise: “You are in charge,” and “the platform and all data take place in your server.” It adds that, “The pricing that the clients receive comes from your forex platform, so there is never a mismatch.”
In January 2018 the Financial Conduct Authority will take control of the industry, allowing people to make complaints and potentially receive compensation.
The Police placed the figure lost at £50 million overall with £18 million having been lost in 2017.