The Canadian Securities Administrators (CSA) is warning about a scam popping up across Canada that's draining the bank accounts of investors.
The binary options scam is a short-term bet on the direction of an asset, such as a currency or stock. Unlike regular options, they are all-in: bet right and you make all the money from the person on the other end of the trade. If you're wrong, you lose it all.
"I like to think of it as online gambling disguised as a financial product. It's a wager of sorts," Jake van der Laan, a member of a CSA task force and the director of enforcement with the Financial and Consumer Services Commission of New Brunswick, told CBC's Shift New Brunswick.
No prize likely
He said an example would be buying a binary option that the Canadian dollar would be worth a certain value at a given time tomorrow, but if you were wrong, you would lose your money.
Even if people are correct, they likely won't get any prize.
"Many of these websites are not legitimate. The actual trading doesn't happen," said van der Laan.
The overwhelming majority of binary options sites are rigged to lure in victims with small early returns, says CSA. A "free" $100 in credits will likely be enough to get a victim hooked.
How people are contacted
Van der Laan said potential investors are contacted by email, telephone or social media and directed to a website that looks legitimate with charts and graphs. At the website, people can register, provide credit card information and begin trading.
Scammers use fake names and are based in other countries, with many coming from Israel, said Van der Laan.
He said 800 complaints related to the scam were received in Canada last year and he estimated the losses to be in the millions.
Van der Laan advises that people be skeptical of binary options proposals, research them and to talk to professionals beforehand, such as a financial advisor or regulator for advice.
A binary options awareness page set up by CSA says "no individuals or firms are registered to sell binary options in Canada."