Consumer affairs group Which has warned against binary options investments, saying they were little more than “high-risk gambling” and “a scam”.
The group has published an investigation into the industry which exposed unfair contracts, rigged data and practices stacked against investors.
Harry Rose, editor of Which Money, 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.”
Binary options allow an investor to make a bet on the price of value of a stock, commodity, currency, index or anything capable of being measured in financial terms.
The time periods involved tend to be very short, ranging from between 30 seconds to five minutes.
Which said latest police figures showed around £50m has been reported lost to binary options scams, including £18m in 2017 alone – although the figure is likely to be much higher.
The consumer group said that it had examples of numerous people who have lost thousands of pounds to the scams, with some having even lost six-figure sums.
Last week the Financial Conduct Authority issued a warning on binary options, saying the majority of consumers who invest in them lose money.
From January the regulator will take over the regulation of binary options from the Gambling Commission as part of the introduction of Mifid II.
This means these firms will need to be authorised and supervised by the FCA, and individual complaints will be handled by the Financial Ombudsman Service and consumers will have access to the Financial Services Compensation Scheme.
The FCA has also pointed out that in most cases, the firm a consumer buys options from benefits when they lose.
This means the firm’s interest is in direct conflict with the consumer and increases the risk of poor conduct by firms offering these products.
Last month the City of London Police, which runs anti-fraud group Action Fraud, conducted a day of action and visited 20 offices in the City with Trading Standards to talk about binary options fraud..
Chief Superintendent Glenn Maleary, the City of London Police’s head of the economic crime directorate, said: “This multi-agency operation allowed us to speak with multiple businesses and gather significant intelligence around various investments currently being traded in the City.
“Throughout this year we have been raising awareness of binary options fraud and over the coming days we will be providing more advice on how people can beat the boiler rooms and protect themselves from all types of investment fraud.”
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