Binary Options Regulated and Scam Brokers

[Pharaoh]

I think you've slightly overstated my case. I am inherently against bucketshops in the same way that I am inherently against letting your IB operate as an account manager - there's a huge built-in conflict of interest. For managed accounts, it's easy to avoid - get a manager who is ONLY paid via high watermark and gets no other compensation from the broker. For trading, use an ECN/STP broker or a market maker that frequently (1 minute or less) hedges its net positions. Binary brokers don't have this ability, so the conflict of interest is a permanent part of the whole industry.

Nadex and every other binary broker out there is 100% bucketshop with no LPs. There are a number of forex brokers in the same category. Why would a forex broker do this? Simple - as long as the net losses are larger than the next profits for all clients, it's a cash cow. The problem is that a few smart clients can keep compounding their winnings and the cow produces less milk for the company.

I also CLEARLY said that well regulated casinos are in the same category. Unlike binary brokers, physical casinos do have additional revenue streams such as restaurants, shows, and souvenirs, but the gaming floor is the core of the business and prime source of income.

I said that as far as I'm concerned the only 2 regulators I'd trust for dealing with binary brokers are the US and UK regulators. If the Swiss start regulating BO brokers, I'll think about adding them to my list. For all other regulators, I want to see some enforcement actions taken. Cysec has already proven themselves barely capable of levying small fines and kicking out bad forex brokers. I'm waiting to see if they'll do anything against the binary brokers who keep breaking the regulations about locking up initial deposits.

Just like forex brokers, it's possible to have an under-regulated or unregulated binary broker that's honest. And, just like forex brokers, those under-regulated and unregulated binary brokers are capable of turning dishonest or disappearing with all the money.


Nowhere did I state that binary options is a guarantee of financial failure or scam. Based on the complaints, I'd say the scam percentages of binary brokers far exceed that of forex brokers.

What I did say is that if too many of the traders/gamblers at ANY bucketshop get too good at the games, then I can 100% guarantee that any honest bucketshop will find itself in danger of bankruptcy.

This leads to 2 things.

1. By always playing against the customers, the only solution other than bankruptcy is to legally adjust things in favor of the house/broker (downgrade payout percentages, add that 2nd green spot to the roulette wheel, widen spreads, etc.)

2. Give into temptation and start to do things that are less than legal. The Nevada gaming commission wasn't created just to rubber stamp all those "honest" casinos. It was created to force them to be honest. The origins of the CFTC, SEC, NFA, FCA, ASIC, etc. are exactly the same - to clean up the mess in the dishonest financial industry. After all, if everyone was honest, we wouldn't need regulators and police officers.

Benie Madhoff didn't start out running the world's largest Ponzi scheme. He suffered some reversals and just couldn't admit to clients that things were bad. How many other "good" and "honest" financial companies can you count than embraced the dark side when things went bad?


Chances are than there will be a large enough supply of losing traders to keep Nadex honest and profitable for many years to come. I hope you enjoy a long and profitable time placing binary wagers with them. Just don't try to fool yourself into thinking that 1 cent of Nadex's income or 1 cent of profits you withdraw comes from a liquidity provider or from any source other than losses of other clients.

Show me how Nadex isn't 100% a bucketshop and I'll happily rethink my position. Until then, I'll stick to well-regulated forex brokers that clearly advertise who their LPs are. If I get an urge to play in a bucketshop, my personal preference is the dollar slot machines. The payout percentages are far higher than BO, and no one will block be from cashing my chips at the end of the day. Ask me nicely and I'll even let you in on a tip that can sometimes tweak those payout percentages a little higher.

 

[Roaming]

Don't misunderstand me Pharaoh. I hate bucketshops who cheat clients into believing that trading is easy and can make them millions, if they are forex, binary or options brokers, the same for me. It does not matter too if they are regulated or not, especially when the registration is outside the US.

Binary options is not a perfect concept nor Forex, there are flaws in both. Some investors may like this, that or both and might trade successfully.

My idea is not taking things in absolute like pretending BO is Scam, whatever the broker regulation, clients will be cheated anytime or broker will go bankrupted.

BO brokers are market makers but that does not have to be a bad thing. They don't have liquidity providers dealing with in the same concept as Forex, but they actually take their data feed from liquidity providers.

Respectful BO Brokers don't create market prices, clients can see the same on their brokers mt4 or trading station with little difference due to spread in forex and lack of it in BO. But, as much as the forex broker has low spreads as much as the price will be very near to the BO broker.

I can summarize BO by trading Forex with all its real market prices but in a different way, other trading concept.

Okay, the 60 seconds is gambling, and so in Forex if you execute a trade on news trading time without quickly setting stop loss and take profit, might loose more than the fixed amount you loose in BO.

If we want to compare both in actual trading, we can find Pros and Cons for both. It's all about what's suitable for your trading style(one or both)

Don't forget that with a fair BO broker, the BO concept can play for your favor too.

It's not about Swiss giving regulation, Saxo is a Denmark Bank and Dukascopy a Swiss Bank, many 100s of millions in Capital, Net Income and huge clients base. They do not just offer BO but forex, commodity, shares, futures services etc

To be honest, I only trust the NFA CFTC from actual experience, until I live in the UK may test the FCA, or FINMA in Swiss or ASIC in Australia.

There are two points we are not agreeing on: First, didn't answer how you got the 60% Winning Clients when you know it can never happen when at least 75% of forex traders loose, how in BO? much worse. Just looking at this, can conclude no Big BO broker will go bankrupted anytime soon unless goes very greedy for much more profits, this said it will start cheating on its clients first, that will be a red flag for clients to withdraw quickly.

Second: Don't care if am profiting from other clients losses, there are always losers for winners to succeed. Payout in BO is the same as spread, commission or both in Forex, when BO Brokers are earning the 15-30% from each client investment amount, add to it losers investment, how will a regulated big base clients BO broker go bankrupted even if winners numbers increase at some period(limited), Mr. Pharaoh ???

 

[Pharaoh]

Before getting into the parts where I agree, let's go over the last paragraph:

A "good" forex broker that passes trades onto the real market via LPs makes it's cash from spread markup and/or commissions (yes, there are some bad ones that are total bucketshops). If I get lucky and catch the trend of the year on a big trade, my profits cost the forex broker nothing. If my Forex Magic 8 Ball finally starts working properly and I win every trade and I get 100 clients of the broker to follow my trades and use the profits to increase trade sizes, the forex broker will be very happy at all the money it collects per trade and loses nothing.

A "bad" forex broker, and ALL binary brokers, good or bad, have no LPs and no way to pass risk on to the real market. The forex broker bucketshop gets 100% of the spread and commissions, PLUS the net losses of all clients. The binary broker only makes money by the next losses of all clients. In both cases, if those net losses turn into net profits, the broker is losing money.

So, my biggest gripe with BO brokers is the same as with some very bad forex brokers - the bucketshop model is profitable if AND ONLY IF the sum of all losses exceeds the sum of all profits. This sets up a built in conflict of interest that leaves a perpetual motive to cheat the trader. This impulse may not be acted on today or tomorrow, but it's always there, and it will grow exponentially if the broker ever finds itself in a serious fiscal crisis. The problem is that this can happen with no external warning at all, so there may be no red flags and an apparently "good" broker can suddenly just stop processing withdrawals.

Add in that many of the brokers like this offer "experts" to "manage your account" and make certain profits - at least until they start trading. This is exactly like a casino offering an expert to guide you in placing bets or even doing the gambling for you. Even it it's profitable at first, it can't ever lead to long-term success. Either the account gets wiped out by kiss of death trades, or it turns out that withdrawals are impossible.


And, there are some points where I'll have to agree,

With the number of people flocking to binary brokers, chances of one finding itself short on cash in the near future are low. It's only as better traders start compounding their profits, teaching others, and giving signals that the amount of money won starts to creep dangerously close to the amount lost. So, if you do stick to a well-regulated binary broker, your funds are not likely to be in immediate danger of disappearing.

The issue with this is that so far, there are only a small number of binary brokers under the best regulators, and we haven't yet seen how those regulators will deal with problems. I'm reasonably confident that US regulators will keep Nadex on a short leash. Dukascopy is tightly regulated and is big enough to handle some losses, so if things ever did go bad with their new binary program, they'd probably just close it down and send the balance owed to all the clients.

As for other binary brokers, until you see them well regulated and see how that regulator deals with an issue, stay away. Cysec reminded all brokers that they can't use bonus terms to prevent initial deposits from being withdrawn, but the complaints have continued.

Regulated or not, do not allow ANY forex or binary broker employee to trade your account for you. Even with a tightly regulated ECN broker, the temptation to churn the account for commissions is always there. For a bucketshop (too many forex brokers and all binary brokers), you have an employee who is paid solely out of client losses promising to generate profits for you. The number of complaints about this in the Scam Alerts folder should be all the proof you need that this is a very very bad idea.

 

[Joa]

I do believe that there is just a giant misconception and I do agree with Pharao that Binary Options are BETTING and therefore gambling.
By the simple mechanics of way more than 90% of "Forex trading" -guess what: It's gambling too!!

Try to understand what really goes on: The vast majority of Forex Brokers, regulated or not, takes trader's orders on their B-Book. If you know what that means you realize that your orders, resp. positions taken, are never really placed in the market, no matter what you're told. You all hear ECN, STP, no dealing desk.... it means absolutely NOTHING. It all goes STP on their B-Book, no dealing desk required for that one. If you don't know this, then check the order size at Currenex. You take the pain and visit Saxo... you start asking questions about how they are processing the orders.... and you'll be told how they do it - if you know which questions to ask that is. They're "pooling" clients positions.. and then hedge the net positions if necessary... later...... If in doubt, go to the web site of Leverate where they offer the software for running A- and B-Books........ Take the hint....
So what do these brokers do? They match client's orders, longs vs. shorts, they cash the spread on both sides, and often a commission on top. They M A Y manage/hedge their risk, if and when one side of positions gets into the net overhang, and only then do they take the opposite position in the market, therefore "hedging" their risk. It's exactly THIS tactic and business principle that saves them an aweful lot of money that YOU pay for and increases their profits dramatically. How else do you think "cancelled" orders come into play? In these days of electronic trading there is no such thing as "cancelled" - unless you're dealing with...., you guessed it: A bucketshop. They count on traders losing anyway and now they got a problem with their own and inexistent liquidity and start eliminating winning clients positions, AND ONLY WINNING POSITIONS AT THAT. .. and they keep doing so until they've found a matching balance of longs and shorts.... And in many cases, when studying the terms and conditions, they're even allowed to do so....... Get the hint, will you....
So ... to me this is plain criminal and you may sue me for such a statement. There is a reason why the owners of some Brokerages on Cyprus became Billionaires and are sponsoring Formula One.......

Regulation? You all think because of regulation by whatever entity is providing a safety net? Think again. Hedge Funds and other LP's run the show. Stop hunting? It's legal. Price moves of 100 Pips and more out of nowhere at midnight.. it's legal. You just need the cash to do so when nobody is around to fight. All that's required is: The broker must state in the general terms and conditions how he's going to rob you blind (i.e. fast market conditions!!!) and swoosh... IT'S LEGAL!!!!!!!
So you're diddling around with positions of 1K or 10K and you think it's all perfect? Right..., Keep the stops far away from your entry price, right? That's a guarantee to lose money. The only shot you got is when you're hitting a trend once or twice a year with stops 150 pips away......
So nobody tell me this rigged forex market is anything close to "FAIR".....

Now to the binaries.... Everybody is screaming scam scam scam.... What the heck do you think "Knock-In" or "Knock-out" Options are?
It's perfectly legal, right? Just because some large Bank or Broker is offering these Options does not make it an investment either. It's nothing but gambling just exactly as the binary options are. Knock-In and Knock-Out Options are binary by nature as well, a little more sophisticated I'd have to agree.
Once you consider the bizniz of the Binaries to be BETTING, you start looking at this from a different angle. In the UK the betting business is big and it is regulated. You can bet on practically anything and everything and nobody calls it a scam. If you bet on something - there has to be a counter party taking the opposite side. Study a "Broker" like MarketsWorld (regulated by the Gaming Commission on the Isle of Man) and you realize that whenever you click to take a bet, you're not allowed to do anything else for 15 seconds, because someone has to take or they have to hedge your bet. Pretty simple mechanics. It's all based on average price and the projected direction of the market. If markets move too fast and too far off the median projection, "trading" is disabled for a few seconds. Safety measure. They wouldn't be able to hedge fast enough under such conditions. Your position size is restricted. So is the account size. Makes sense to me. The Gaming Commission keeps a tight reign on gambling, rest assured of that.
Then consider ETX with their Binary Options Platform, with its corporate seat in the UK, ETX as part of Monecor Ltd. (a member of the London Stock Exchange) and regulated by the FCA.... Anyone here honestly believes that is a crooked entity flying at night below the radar of the FCA? Do I worry about how they hedge and manage the binaries? I don't and if so, then I worry about that as much as I worry about my positions in Forex being on their B-Book....
Consider then HY Binary Options (revamping their system and therefore currently not active in Binaries), regulated by the FCA as well...

When you try to understand the mechanics of hedging net positions, considering forex AND binaries, then you realize that an honest binary broker can hedge the risk of the net positions as good as any forex broker......

There will be more and more FX brokers coming into Binaries and using their internal systems to hedge, and do so in an honest way. Stay away from ALL other entities regulated by +Authorities+ who don't deserve that name, CySec being one of them.

 

[Roaming]

The issue with this is that so far, there are only a small number of binary brokers under the best regulators, and we haven't yet seen how those regulators will deal with problems. I'm reasonably confident that US regulators will keep Nadex on a short leash. Dukascopy is tightly regulated and is big enough to handle some losses, so if things ever did go bad with their new binary program, they'd probably just close it down and send the balance owed to all the clients.

As for other binary brokers, until you see them well regulated and see how that regulator deals with an issue, stay away. Cysec reminded all brokers that they can't use bonus terms to prevent initial deposits from being withdrawn, but the complaints have continued.

Regulated or not, do not allow ANY forex or binary broker employee to trade your account for you. Even with a tightly regulated ECN broker, the temptation to churn the account for commissions is always there. For a bucketshop (too many forex brokers and all binary brokers), you have an employee who is paid solely out of client losses promising to generate profits for you. The number of complaints about this in the Scam Alerts folder should be all the proof you need that this is a very very bad idea.

That's the only thing I want from you, AGREE

That's my idea, when we all know that most traders will fall than continue winning why care a lot about regulated brokers getting out of business for a no guarantee stat of many winners than losers % when BO brokers earn its money too from difference between investment and payout., add to it losers money.

Totally Agree about not letting any account manager or whoever trade your account, none will take care of your money than yourself
And, not taking any bonuses despite some regulated brokers( Forex and BO) don't lock traders money even if under bonus condition, that many regulators warned it brokers of locking etc
Read that some brokers keep the bonus in a separate account, trader can use or withdraw when the bonus terms are applied.
This is a good way I think, traders can still withdraw their deposit and profits at anytime.

 

[Roaming]

Well said Joa. That's the main idea had been working on convincing Pharaoh about, yet hoping

Forex brokers are no better than BO brokers even when they say ECN/STP execution, none will be triggered out of the book unless its 10 lots or more maybe.

I agree on many points but disagree your doubt on (regulation by 'whatever entity" is providing a safety net).
NFA and CFTC had been working hard through the years, fined many big brokers and continuing the great work.
I don't trust that FCA are on the same level but they are working too. Swiss Regulator FINMA is also a very good regulatory body and we all know how safety Swiss Banks are but there news about fining is less favorable to hear like with the NFA and CFTC, maybe because brokers under Swiss regulation are very respectful and less to cheat its traders.

 

[Joa]

Talking about Swiss regulators FINMA.....
Some of the members here may recall the story of Crown Forex. In that case I tried to assist as good as I could.
The advantage of the FINMA is very clear to me, as opposed to the CySec. The FINMA actually acts over night, walks in and blocks ALL funds that are held by a broker, regulated or not. They do indeed walk in at the drop of the hat, remove the management, replace it with liquidators of their choice - and such things keep brokers honest. I think no bucket shop of any sort has more than a few days or weeks to work in Switzerland. Yes indeed, I am Swiss

 

[NanoAlpha]

I've long been interested in binary options, at least this put/call fixed payout variant that is popular now. But I've never found a reputable broker.

Saxo Bank binaries are not really binaries (they are more vanilla like), Nadex binaries are also more classic and anyway they don't take non-US customers.

But now that Dukascopy started offering them I've opened an account. I think that at least I could get my initial deposit out in case I'm too successful and they kick me out.

I'm with Pharaoh on this, I can't see how they could possible hedge them so that they make money in any case. This is probably why they limit the bets to 1000 per bet (and 10 bets most at any time).

It's not possible to hedge a $10000 bet on a 0.3 pips EUR/USD increase, especially when you offer the same odds all the time.

So their only possible game plan is hoping for more losers than winners. But winners will inevitably bet the max amount, while the losers will bet the typical $10-$100 bet. So I can't see a way out for Dukas. This will be interesting to watch.

And a few interesting clauses in their contract:

21.5. Dukascopy shall investigate any written sufficiently documented grievance, and communicate its position to the Client no later than within 30 days upon receipt thereof.

21.6. In turn, the Client shall not make public statements in any form concerning any grievance for 30 days. Should the Client violate this provision, the Client agrees to pay to Dukascopy Bank SA anticipated reputational damages in the amount of CHF 100 per day per violation, to a cumulative maximum of CHF 3000.

21.7. In any event, the Client and Dukascopy shall make every endeavour to amicably resolve any dispute, in good faith and in a constructive manner. The Client acknowledges and agrees that threats and blackmailing towards Dukascopy are prohibited and constitute valid ground for interrupting negotiations and for immediate termination of any business relationship.

So threatening them with FPA is a no go

I will report how it goes with Dukas. IG Markets and ETX Capital are also on my tiny-chance-of-actually-being-honest list.

 

[Roaming]

Being a one post guy and coming here to criticize Dukascopy says it all! You are using a username, they'll not know who you are anyway, only if there was a real case with them firstly!!
I can't believe that a bank like Dukascopy will stop you from withdrawing money or cut your profits just because you are succeeding!!, that's if we believe your story!! You remind me of some traders who accuse brokers calling them scam, saying it stole less than 100 or 50 dollars, even the worst scam broker will not go after that small amount.

Explain your case in details, can keep your account number and name hidden if you like.

 

[Pharaoh]

I can sympathize with brokers who are tired of clients filing public complaints before even asking support to check on the issue. On the other hand, assuming that the terms posted are correct, I think a 100 CHF per day penalty for public complaints is a bit harsh. I'd also like to see clarification on whether something like "fix my problem or I'll share the facts publicly" counts as blackmail.

If all of this is true, I would consider it to be a valid reason to rethink doing business with any broker, no matter how good its reputation or what trading model it employs.