The Financial Conduct Authority (FCA) is warning the public about online investment fraud, after new figures reveal that £87,000 is being lost every day to binary option scams.
Binary options allow an investor to place a bet on whether the price of a share, commodity, currency or index will rise or fall above a set price over a certain time period.
The products only give you two possible outcomes, as the name implies: you’re either right and you win back your stake with a profit, or you’re wrong and you lose your investment.
Binary options are a rapidly growing financial product, but in many cases, they are a fraud.
To attract new customers, fraudsters often promote themselves on Facebook, Instagram and Twitter. They promise high returns and use images of luxury items. Fake testimonials on how an investor ‘got rich in two weeks’ are rife online.
Techniques include luring victims with an early win that delivers huge gains, so they end up investing more only to ‘run out of luck’ and eventually lose everything.
Mark Steward, director of enforcement at the FCA, says: ‘As people have become more sceptical of investment-related cold calls and consumer habits have changed, we have seen investment fraud moving online and to social media.
‘While their websites and profiles appear to be professional, they are all too often run by fraudsters who fix prices and pay-outs, or in some instances don’t really place trades at all, before disappearing with innocent investors’ money.’
A recent investigation by Which, the consumer champion, found that the dodgy aspects of binary options are often in the small print. The report by Which? notes it was concerned by ‘the terms and conditions imposed by all of the binary options sites’ it looked at. Which? found many had initial bonuses, which it says ‘required investors to gamble huge amounts before they had a chance of seeing their money back.’
The report adds: ‘Others had clauses that meant customers could only withdraw profits, rather than their initial stake. Some charge fees for withdrawals, or limit withdrawals to levels well below the minimum deposit. If you don’t trade for a month or two, many start charging inactivity fees. Some had clauses that meant the money in our account was technically owned by the site.’
On 3 January 2018, binary options became a regulated investment product, meaning that all firms trading in binary options need to be authorised by the FCA. Since then, the FCA has published a list of 94 firms that offer binary options without being authorised to do so.
To avoid falling victim to investment fraud, the FCA advises people to:
- Reject unsolicited investment offers whether made online, on social media or over the phone.
- Before investing, check the FCA Register to see if the firm or individual you are dealing with is authorised and check the FCA Warning List of firms to avoid.
- Get impartial advice before investing.
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