Investor Assistance (800) 732-0330 www.investor.gov
Investor Alert
Binary options and Fraud
The SEC’s Office of Investor Education and Advocacy and
the Commodity Futures Trading Commission’s Office of
Consumer Outreach (CFTC) are issuing this Investor Alert
to warn investors about fraudulent promotion schemes
involving binary options and binary options trading
platforms. These schemes allegedly involve, among other
things, the refusal to credit customer accounts or reimburse
funds to customers, identity theft, and manipulation of
software to generate losing trades.
Binary Options
Binary options differ from more conventional options
in significant ways. A binary option is a type of options
contract in which the payout will depend entirely on
the outcome of a yes/no proposition.
The yes/no proposition typically relates to whether
the price of a particular asset that underlies the binary
option will rise above or fall below a specified amount.
For example, the yes/no proposition connected to the
binary option might be something as straightforward
as whether the stock price of XYZ company will be
above $9.36 per share at 2:30 pm on a particular day,
or whether the price of silver will be above $33.40 per
ounce at 11:17 am on a particular day. once the option
holder acquires a binary option, there is no further
decision for the holder to make as to whether or not
to exercise the binary option because binary options
exercise automatically. Unlike other types of options,
a binary option does not give the holder the right to
purchase or sell the underlying asset. When the binary
option expires, the option holder will receive either a
pre-determined amount of cash or nothing at all. Given
the all-or-nothing payout structure, binary options are
sometimes referred to as “all-or-nothing options” or
“fixed-return options.”
Binary Options Trading Platforms
some binary options are listed on registered exchanges
or traded on a designated contract market that are
subject to oversight by United states regulators such
as the seC or CFtC, respectively, but this is only a
portion of the binary options market. Much of the
binary options market operates through Internet-based
trading platforms that are not necessarily complying
with applicable U.s. regulatory requirements. The
number of Internet-based trading platforms that offer
the opportunity to purchase and trade binary options
has surged in recent years. The increase in the number
of these platforms has resulted in an increase in the
number of complaints about fraudulent promotion
schemes involving binary options trading platforms.
Much of the binary options market operates
through Internet-based trading platforms that
are not necessarily complying with applicable
U.s. regulatory requirements and may be engag-
ing in illegal activity.
