Why CFTC warn Forex broker’s client about extreme levels of risk

The forex regulatory bodies have issued an investor alert concerning fraudulent practices perpetrated by top forex brokers that offer Binary Options trading and their trading platforms. The accusations include refusal to credit customer accounts, denial of fund reimbursement, identity theft, and manipulation of software to generate losing trades.

Binary Options

A binary option is a contract in which the outcome of a yes or no proposition determines the payout. This proposition is usually about whether or not a particular asset will rise above or falls below a certain amount. In binary options, the trader does not have the right to buy or sell the asset in question. Upon expiration of the binary option, the holder is given either an already-agreed amount of money or nothing at all. This is why binary options are sometimes known as all-or-nothing options or fixed-return options.

Complaints by Investors About Fraudulent Binary Options Trading Platforms

Several complaints of fraud have been received by the CFTC and SEC from investors about websites that offer an opportunity to buy or trade binary options on online-based trading platforms. Fraud number one is that certain binary options trading platforms have been failing to credit customer accounts or reimburse funds after receiving money from their customers. Usually, these complaints come from customers who have already deposited money into their trading account, are encouraged by forex brokers on the telephone to make additional deposits into the account. Subsequently, when they attempt to withdraw their money or the profit they were promised, the trading platforms simply annul the withdrawal requests and ignore all attempts at contacting them.

Another kind of fraud is identity theft in which certain binary options trading platforms have been collecting information such as credit card and driver’s license data from their customers for unspecified purposes.

There is a third category of alleged fraud which is the manipulation of the binary options trading software to produce losing trades. According to these complaints, the Internet-based binary options trading platforms compromise the trading software to alter binary options prices and payouts.

Assorted Violations

There are other areas in which several binary options trading platforms may be operating in violation of other laws and regulations, including the following registration and regulatory requirements of the CFTC and SEC.

Registration and Regulatory Requirements of the SEC

Some binary options trade in securities. The federal securities laws provide that a company should not offer or sell securities unless such offer and sale have been registered with the SEC or there is an applicable exemption from such registration. In the situation where any of the products offered by binary options trading platforms are security-based swaps, more requirements will apply.

Again, some binary options trading platforms may be operating as broker-dealers without registration. In the United States, every person who engages in the business of effecting securities transactions on the behalf of others is generally required to register with the SEC as a broker-dealer. Every binary options trading platform offering to buy or sell securities, to effect transactions in securities, and/or to receive transaction-based compensation (such as commissions), should be registered with the SEC.

Also, some binary options trading platforms may be practicing as unregistered securities exchanges. This commonly occurs if they matched orders in securities of many buyers and sellers with the use of established non- discretionary methods. Nevertheless there are instances where a registered broker-dealer with a trading system or platform may lawfully have no compelling them to register as an exchange.

To find out if a specific trading platform is registered with the SEC as a broker-dealer, you can check FINRA’s BrokerCheck.

How to Avoid Fraud

The commodity futures and options markets are risky investments and one can lose one’s entire investment quickly.  Free educational resources have been provided by the CFTC Office of Consumer Outreach to create awareness amongst likely investors before they become involved in the markets.

Ensure to check against the CFTC’s signs of fraud for signs of scams when researching market investment opportunities. Also, if you have been approached by or involved in a scam or other fraudulent activity, contact the CFTC.

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