If you frequently browse YouTube, chances are that you might have come across ads that promote ‘Binary Options’. These ads look pretty authentic at the first. However, these ads turned out to be a menace. So much so, that YouTube decided to restrict any advertisement that promotes binary options. These ads promised clients a way to get rich quick while operating a scandalous operation in the underbelly. These ads look like something given below.
Well, if one trades on these platforms, chances are they might be in for some trouble and lose quite some money, Let’s find out why.
What Are Binary Options?
First, let us understand binary options in the simplest way possible. Binary options use a simple ‘Yes or No’ proposition. In binary options, an investor predicts or bets whether the price of scrip will go up or down. If the prediction is true, the user retains the original amount invested plus an additional bonus on top. However, if the prediction is wrong, the investor loses money.
Most of these companies that operate in India operate from outside of India in tax-havens or countries where the securities laws are favorable to binary options. They offer a high margin amount going up to 1000%. This means that you can double the money with a 0.1% change in the price. Additionally, one can wipe out their entire capital in a 0.1% change in price.
Binary options have managed to catch prey in financially less sound countries, countries with poor financial regulation and countries with poor financial laws. The developed and technologically advanced countries have duly taken note and banned them from being traded.
- Binary options are generally run by private brokers or companies and NOT on stock exchanges, unlike regular options. This means that prices can be manipulated by the company and not the normal market forces. Binary options generally derive value from globally traded scrips like Oil, Gold, or Forex.
- Binary options are an all-or-nothing proposition. This means that either you make a lot of money, or you lose all of it in one go.
- In most cases, binary options brokers hold positions against that of their clients. This means that if you lose money, they make money. The odds are in the favour of the brokers since they are the ones who influence the option pricing.
- Binary options offered high profits initially to encourage users to invest more capital on their platform. Once the user had invested a good amount, they would lose all their capital at once since the operators manipulate the price.
- There has been frequent news of binary options brokers being arrested and being sentenced for up to 22 years.
Legalities of Binary Options
Binary options are not traded on BSE, NSE or any other exchange in India. SEBI forbids trading of binary options in Indian exchanges. One may however use foreign platforms to trade binary options.
Trading in binary options is a sticky subject when it comes to the legalities of it. Trading in binary options is a violation of the Foriegn Exchange Management Act(FEMA). There are no companies with a physical setup in India that can offer binary options.
The European Union has banned binary options. In most developed countries, trading in binary options is banned, officially. The gambling like nature of binary options has forced countries to take strict action against participants.
Binary options have been restricted from advertising by Google Ads. However, miscreants have been exploiting India’s financial illiteracy with a greed for quick money and now have taken to partnering with online web-series and youtube channels to promote their business.
Binary Options may not be scandalous always, but the intent with which it is operated in almost all cases is dishonest. It is advisable to market participants that they refrain from trading binary options since it can land them in jail for violating FEMA act and also make them lose a lot of money to fraudulent means with not much legal remedies.