Binary options involve placing a bet on whether a specific stock,
commodity, index, currency, or whatever will go or down within a specific
period of time (usually very short). If you guess right, you win. If you
don’t, you lose. Think of it as the financial equivalent of betting red or
black on each turn of a roulette wheel. The attraction is that you don’t
need to invest a lot of money, it’s easy to understand, and that it can be
done on line from your home.
The disadvantage? Most people lose money (sometimes a lot), and some of the
sites that promote this activity are scams. According to Wikipedia, the FBI
estimates that these scam sites steal about $10 billion a year from
My original column was based on an email I received from a professional
online poker player who, ironically, was trying to convince his father to
stop investing money in binary options. He wasn’t having much luck.
“The problem is he feels he is at a great advantage, citing his ability to
read a bunch of charts, follow news, etc.,” the reader said. “He is a smart
man, a former lawyer, and has been following stocks for years, but I feel
that he may be overestimating himself here. I’ve looked into online binary
options trading a bit, and it seems to me that the consensus is that very
few people outside of professional traders can beat the trading sites
consistently for good money.”
I did my own research after receiving this note and came to the same
conclusion. There is no way to accurately predict how any investment
vehicle will perform in the next 30 minutes, and you must win more than 50%
of the time just to break even. Add to that the addictiveness of this form
of gambling (because that’s what it is), and it all equals financial ruin.
As I said, that article was written eight years ago. I bring it up now
because of a bulletin issued recently by the OBSI. It notes that while the
sale of short-term binary options has been banned in Canada, investors can
still buy them online through websites based in other jurisdictions. The
message is: Don’t do it!
“Binary options are a very high-risk investment that Canadians should
avoid,” the bulletin says. “At best, they are a high-risk investment
strategy suitable only for sophisticated investors who are willing to lose
their entire investment. At worst, the investments may be frauds designed
to take advantage of unwary investors.”
OBSI notes that securities administrators have been working with credit
card companies, tech firms, and advertisers to prevent the sales of binary
options in Canada.
“However, because binary options are both a global and digital investment,
a ban is challenging to enforce,” the bulletin said. “Canadians unaware of
the volatile and often fraudulent nature of these products may continue to
purchase them over the Internet.”
OBSI goes on to warn that investors who disregard the warnings and then try
to make claims for unwanted charges on their credit cards are out of luck.
“We have received multiple complaints from investors who used their credit
card to purchase binary options. These investors later disputed credit card
charges related to these transactions. They believed that because they did
not receive the promised services (such as the ability to withdraw their
investment capital) that the issuing credit card company should allow a
chargeback or reversal of the charge.
“In the cases OBSI investigated, the chargeback was refused by the credit
card company. We found that the banks involved were not at fault for the
failure of the chargeback request because they followed the normal
chargeback policies and procedures. It was the policies of the payment card
network operators that prevented the consumer from recovering any disputed
charges. As a result, we could not recommend that the banks compensate the
cardholders. We identified this as a systemic risk and reported it to the
Financial Consumer Agency of Canada.”
The message couldn’t be clearer. Binary options were a bad investment when
I wrote my original column eight years ago. They still are today.
You can read the original article on the
website. Go to the OBSI website to read the bulletin: www.obsi.ca.
is one of Canada’s best-known personal finance commentators and
investment experts. He is the publisher of
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Notes and Disclaimer
© 2018 by The Fund Library. All rights reserved.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned carry risk of loss, and no guarantee of
performance is made or implied. This information is not intended to provide
specific personalized advice including, without limitation, investment,
financial, legal, accounting, or tax advice. Always seek advice from your
own financial advisor before making investment decisions.
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